Success of Cache IPO spurs other Reit plans

Indian firms Unitech, DLF revisiting prior shelved offerings

The success of Singapore’s Cache Logistics Trust offering this month has prompted talk that other similar, previously shelved real estate investment trust (Reit) offerings are now being dusted off.

India’s top real estate firms, DLF Ltd and Unitech Ltd may revive their Singapore IPO plans, banking sources said, while the Embassy Group is actively looking into raising funds in the city state.

Cache Logistics Trust raised US$300 million after its IPO was priced at the high-end of an indicative range at a time when Asia’s IPO markets have seen mixed success since last year’s bull run. The stock ended up 8.5 per cent on its debut yesterday.

‘Cache’s success could point to a Reits (real estate investment trusts) proliferation in Singapore,’ one of the sources said. ‘Some of the Indian companies have been approaching bankers for the process,’ said the source, who asked not to be identified due to the sensitivity of the issue.

DLF had planned a US$1.5 billion IPO, while Unitech had sought to raise about US$500 million for its IPO, but these were put on hold in 2008 due to the global financial crisis. DLF and Unitech are India’s two largest listed developers.

‘The (Reit) plan is still there,’ said a source at DLF, who declined to be identified as he was not authorised to speak to the media.

Singapore is the third-largest Reit market in the Asia-Pacific with a total industry market capitalisation of around US$20 billion, ranking behind Australia and Japan.

The developed market makes it an ideal listing spot for companies in other Asian countries, such as India, where Reits are not allowed to be floated.

Timing for the possible Indian IPOs may be tricky, with another banking source in Singapore saying that DLF needed to restructure its assets to package the right properties if it wanted to list its Reits. But sources say it’s a matter of time.

For Unitech, its immediate focus was to spin off non-core businesses that include power, hotels, telecoms and special economic zones, media reports said last month.

Executives at DLF and Unitech say that they have no immediate plans to revisit their Singapore IPOs, but sources say that they’ve been keeping a close eye on Cache’s public offering process.

Apart from the two, Bangalore-based Embassy is looking into raising US$300-500 million by floating its Reit in Singapore, after stalling plans during the financial downturn, sources said earlier this year.

A Reit is a fund that invests in mainly commercial property and pays most of its rent to shareholders as dividends, which are usually higher than yields of government bonds and offer capital gains if property prices rise.

The average dividend yield of Singapore’s Reits was 7.74 per cent last year, according to property services firm CB Richard Ellis, much higher than the country’s average 10-year government bond yield of 2.3 per cent.

Yesterday, Suntec Reit’s dividend yield was 8.31 per cent, compared with Singapore’s 10-year bond yield of 2.8 per cent.

Ernst & Young said that it expected the global market value of publicly-traded Reits to grow this year after rebounding to about US$568 billion at end-2009 from US$430 billion in mid-2009, partly due to renewed IPO interest.

Singapore is not alone in its Reit interest.

In neighbouring Malaysia, property company Sunway City said that it planned to raise about RM1 billion (S$437 million), which could be the biggest Reit listing ever in the south-east Asian country.

During the property boom from 2006 to most of 2008, a slew of Indian developers were actively seeking to float their Reits in Singapore, but almost all shelved their plans during the global downturn.

Source : Business Times – 13 Apr 2010
Singapore Property