The fully marketed offering of shares under Rule 144A proved to be well worth the extra effort as institutional investors based in the US accounted for over 30% of the total demand. And given that the total deal was only 1.6 times covered, that suggests it would not have been fully subscribed without the help from these accounts.
Singapore Reits have been under pressure in recent months as the market has been worrying about rising interest costs and Cambridge is no exception, having fallen back from a high of S$0.98 in May. It is currently trading only 9.6% above its initial public offering price of S$0.68 from last summer. However, the trust has continued to increase both the value of its property portfolio and the distributions per unit, as demonstrated by the latest acquisition, which may explain why many existing unitholders participated in the offering.
According to a source, two of the trustÆs substantial unitholders in particular subscribed to a sizeable chunk of units to maintain their existing stake.
Cambridge, which is backed by a group of 17 property owners, didnÆt comment on this in a release issued yesterday, saying only that the deal received a positive response from over 50 high-quality institutional accounts, including both new and existing investors. It also confirmed that the price had been fixed at S$0.70 per unit, which represented a 6.7% discount to FridayÆs closing price of S$0.75.
According to the release, Cambridge expects to pay a dividend of 5.542 Singapore cents per unit to all unit holders in the financial year to December 2008 which, based on the final price of the offering, will translate into a dividend yield of 7.9%. This is well above the 5.4% average for the Singapore Reits as a group, which can be partly explained by the fact that Cambridge focuses on industrial properties and warehouses which provide higher yields than retail or office properties, which make up the majority of the Singapore Reits.
The yield for 2007 is expected to be 7.7%, which is 4.6% higher than what Cambridge forecast at the time of its IPO. However, as a result of the acquisition cost and the issuance of new units, the yield per unit for this year will now be 12% lower than it would have been based on the existing portfolio before the latest acquisition.
The trust offered 276.973 million new units and, after the close of Singapore trading on Friday, joint bookrunners CLSA and Merrill Lynch said the price would be fixed within a range of S$0.695 to S$0.72. This resulted in a mini-bookbuilding before the deal closed later in the global session. As suggested by the fact that the deal was priced towards the bottom of the range, investors were quite price sensitive û even though the unit price had already fallen 9.6% during the two-week roadshow.
However, at close to 54% of the existing share capital, this was a very large transaction in relative terms and the fact that investors wanted a bit of a gap to the current market price wasnÆt too surprising. The trust is also relatively illiquid, suggesting the bookrunners would have had to work for their fees û even with the participation of onshore US investors.
Cambridge is paying S$184.2 million for the six new properties, which will increase the value of its portfolio from S$672 million at present to S$862.7 million. At the time of its IPO in July 2006 it had assets worth S$531 million. Since then, Cambridge has increased the number of industrial properties under its management from 27 to 40.
This is the first time the trust has returned to the equity market to raise funds for new acquisition and sources say the money raised and the increased room for debt issuance that will result from the larger equity capital should keep it going for a while.
ôThe next portion of growth will come without having to raise new equity,ö one source says, noting that the debt-to-equity ratio will fall to 38% from 48% following this acquisition giving them room to borrow another S$480 million towards further acquisitions.
Cambridge fell 0.5 Singapore cents to S$0.745 in yesterdayÆs trading, although adjusting for the fact that the trust started to trade without the right to a dividend of at least 1.85 cents yesterday, the market price actually rose.
Cambridge was closely watched as it came to market just ahead of several Reit and business trust IPOs and the fact that it was able to pull off a transaction of more than half its market cap should help build confidence among the newcomers. The listing hopefuls that are currently either on the road or close to launching their offerings include two Reits backed by Japanese properties and an aircraft leasing trust sponsored by GE Commercial Aviation Services, which is a unit of General Electric.
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