One Reit sizzles on debut, another fizzles
Two real estate investment trusts (Reits) have just made their trading debuts on the Singapore Exchange with contrasting fortunes.
Pan-Asian service residence Reit, Ascott Residence Trust (ART), closed trading yesterday at $1.15 per unit, giving shareholders of The Ascott Group, who subscribed for units in ART at the preferential offer price of 68 cents per unit, a capital gain of 69 per cent.
Meanwhile, Allco Commercial Real Estate Investment Trust (Allco Reit), which made its trading debut on Thursday afternoon, closed trading yesterday at 98 cents - lower than its initial public offering (IPO) price of $1 per unit.
Based on their closing prices yesterday and their forecast distribution per unit for this year, ART and Allco Reit are trading at annualised distribution yields of around 5.3 per cent and 5.9 per cent respectively.
While it is early days yet in the trading history of Singapore’s two newest Reits, industry observers say that Reits which trade below their IPO price may find difficulty getting investor support to fund future acquisitions.
Moreover, the higher the yield at which a Reit trades, the less flexibility the Reit has to make accretive acquisitions.
ART and Allco Reit are the first two Reits to have started trading on the SGX this year, bringing the number of Reits traded on the SGX to nine.
Several more Reits are expected to start trading on the SGX this year including office Reit, K-Reit Asia, and a retail Reit by Fraser and Neave, amidst continued efforts to grow the Singapore Reit market.
Allco Reit’s IPO is the first Reit IPO for 2006. Industry observers note that the Allco Reit IPO did not enjoy the retail investor interest that was shown in last year’s two Reit IPOs.
Excluding reserved units, Allco Reit’s public offer tranche drew 3,222 applicants for 14.12 million units.
Last year, what is now called Macquarie MEAG Prime Reit’s public offer tranche involving 30 million units drew 27,876 applicants while Mapletree Logistics Trust’s public offer tranche involving 32.3 million units drew 35,237 applicants.
Reits were hotly favoured by retail investors until the later part of last year when retail investors started to be put off by concerns over rising interest rates.
Industry observers note that investors may demand a higher yield from Allco Reit of its exposure to Australian real estate. Yield on real estate in Australia typically exceeds that in Singapore because Australian interest rates are higher than Singapore’s.
With ART, observers believe investors are pricing in the possibility of accretive growth via acquisitions.
ART has started with a portfolio of 12 properties in five countries, worth $856 million.
Source : Business Times - 1 Apr 2006
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