Far East REIT bets on yield demand with IPO

HONG KONG: Far East REIT, a hospitality trust launched by Singapore's largest privately owned property developer, started pre-marketing yesterday an up to S$700 million (RM1.76 billion) initial public offering (IPO), betting on demand from yield-hungry investors burnt by volatile global markets.

With interest rates around the world hovering near record-lows, the fixed return on real estate investment trusts (REITs) are helping lure investors amid an uncertain outlook for equities.

The MSCI World Index has fallen nearly seven per cent since its March peak because of concerns over Europe's debt crisis and China's economic slowdown.

The REIT, which owns hotels and serviced residences in Singapore, is being marketed at a yield of 6-6.5 per cent, said a source with knowledge of the deal who was not authorised to speak publicly on the matter. The yield is slightly below the 6.63 per cent average for all REITs listed in Singapore.

The IPO is set to be the biggest in the city-state so far this year.

"It's still a relatively risk-averse environment, so REITs are something that people are looking at because they give good yields," said Wee Liat Lee, head of property research at BNP Paribas Securities (Asia) here.

"Sentiment has been pretty sizeably affected by the slowdown in China recently, so the interest is diverted to Southeast Asia and Singapore as a capital-raising platform."

The yield for the Far East REIT compares with about 7.9 per cent offered for Ascendas Hospitality Trust's deal this week and six per cent for CDL Hospitality Trust.

By comparison, so-called specialized REITs that also bundle hotel properties traded at an average 6.6 per cent yield in Singapore, 6.7 per cent in Hong Kong and 7.4 per cent in Malaysia, according to Asia Pacific Real Estate Association (APREA) data.

The REIT, sponsored by Far East Organisation, comprises seven hotels and four serviced residences in Singapore with about 2,500 rooms, the source added.

The deal will come on the heels of Ascendas Hospitality Trust's US$304 million (RM957.6 million) offering, which had to be relaunched this week after the company was forced to remove one of the hotels from its portfolio.

It will be a welcome development for equity capital markets in Singapore, where issuance plunged 74 per cent to US$4.7 billion in the first half of the year from the same period of 2011.

The slump was much steeper than the 30 per cent decline in stock sales in Asia ex-Japan, according to Thomson Reuters data.

Far East REIT and its bankers will start taking orders for the IPO on August 6, with pricing slated for August 15. The REIT is set to debut on the Singapore stock exchange on August 27.

About half of the orders for the offering are expected to be covered by cornerstone investors, the source added.

DBS Group, Goldman Sachs and HSBC were hired as joint global coordinators and joint bookrunners on the deal.

By Reuters