Shanghai-headquartered Forchn Holdings Group started testing investor demand on Monday for a new real estate investment trust, potentially raising around $337 million and becoming Singapore's third initial public offering in less than two months.
After a dismal year for IPOs in 2015, Singapore witnessed the rumblings of a revival in the Reit sector with the $470 million listing in May of Manulife US Reit. Poised to follow is Frasers Logistics & Industrial Trust, a vehicle that holds some of the Australian assets of local property developer Frasers Centrepoint, which is set to make its market debut on Tuesday.
Encouraged by the strong investor response to the Frasers Logistics & Industrial Trust IPO, which was more than six times oversubscribed, Forchn now hopes to go public with its own e-commercial logistics properties, heading a number of Chinese firms mulling an S-Reit listing.
EC World Reit, the official name of the listing entity, will hold privately owned Forchn's e-commerce and logistics properties in Hangzhou, eastern China.
The listing of EC World Reit could raise about S$455 million ($337 million) based on an estimated market size of S$700 million and a 65% free float, according to a source familiar with the situation. Forchn plans to retain a 35% interest in the Reit after the IPO.
Portfolio, valuation
The initial portfolio of the trust will consist of six e-commerce and logistics properties with a total gross leasable area of 577,072 square metres, according to a corporate presentation.
The largest property is Chongxian Port Investment, the operator of Chongxian Port, an inland port located in Hanzhou. Chongxian Port is one of nine designated locations for steel trading, as stipulated by the Shanghai Futures Exchange, according to Forchn’s website.
Another selling point is the relatively young age of the assets, which averages out at 4.1 years, and the high occupancy rate, which was 92.3% as of the end of last year and is expected to rise to 99.1% as of the end of 2017, according to the corporate presentation.
The leases were highly concentrated with the top-10 tenants contributing to 96.6% of the gross rental income last year. The included state-owned China Tobacco Zhejiang Industrial and China Post Express Logistics.
DBS is the sponsor of EC World Reit.
According to DBS analysts, EC World Reit’s fair value should be between S$544 million to S$592 million, which implies a 7% to 14% discount to the portfolio’s net asset value. The valuation range equates to an implied dividend yield of 7.35% to 7.95% for the 2016 financial year.
That was based on a 100% dividend payout ratio, which the Reit manager will assume in the next two years. After 2017 EC World Reit will pay at least 90% of its net profit as dividends.
Forchn, which is little known among international investors, describes itself as a conglomerate that engages in finance, industrial, property as well as e-commerce and logistics. The group is a co-founder and existing shareholder of Cainiao Network, the logistics division of Chinese e-commerce giant Alibaba. It also runs its own e-commerce logistics and supply chain management services through a local subsidiary named Ruyicang.
Guobiao Zhang, chairman of Forchn Holdings, is a representative of the Shanghai Municipal People’s Congress and has close ties with the local government.
More Chinese S-Reits
It could also be the first of a few new Chinese S-Reits, with Greenland Group hoping to list its hotel assets in Singapore, according to a company statement in March.
Based on local media reports, Shanghai-based private equity firm Kailong also plans to take its business parks public through an S-Reit.
