REIT IPO Fever On The Rise

Singapore skyline daytime - Copy Moving into the 2nd half of the year, we are seeing more Initial Public Offerings (IPO) being launched as market sentiment improves. Business Trusts and Real Estate Investment Trusts (REITs) are especially popular in Singapore as they offer a higher dividend payout as compared to interest rates offered by the banks (currently at 0.05%).

Some examples of recent IPOs include Mapletree Greater China Commercial Trust (SGX: RW0U) and Croesus Retail Trust (SGX: S6NU), while two upcoming launches announced yesterday are from Singapore Press Holdings (SGX: T39) and Overseas Union Enterprise Limited (SGX: LJ3).

Let’s take a look at each of them in detail.

Singapore Press Holdings REIT IPO

After the delay in the REIT spin-off, SPH has decided to go ahead and initiate the IPO filing today. Predominantly a media business with interests in newspapers, internet sites and broadcasting; SPH also owns and manages the luxury Paragon mall in Orchard Road and the suburban Clementi Mall.

The properties are now being projected into the SPH REIT IPO now with a combined value of S$3.07 billion. The prominent cornerstone investors (investors who take big share of offering and promises not to sell before a certain date to maintain stability) include Great Eastern Life, Hong Leong Asset Management, Morgan Stanley Investment Management.

The shares will be offered at between S$0.85 and S$0.90 and the REIT is expected to yield 5.79 – 6% annually based on these prices.

Overseas Union Enterprises Hospitality Trust IPO

As previously mentioned from my colleague, OUE will be injecting two properties, Mandarin Orchard Singapore and Mandarin Gallery, into the hospitality trust (OUE H-Trust). Those who often shop in the Orchard area may know that these two buildings are connected side by side.

Mandarin Orchard Singapore is a distinguished upscale hotel with strong brand recognition given its long history of operations since 1971 while Mandarin Gallery is a retail mall which comprises many high-end boutiques, shops and restaurants. There are 5 cornerstone investors namely: Credit Suisse AG, Goldhill (a group focusing on property development and related activities), Mr Gordon Tang (Non-Executive Director of SGX-Catalist – SingHaiyi) and more.

The listing hopes to raise up to S$614.0 million with an offer price expected to be between S$88 – S$90. OUE H-REIT intends to distribute 100.0% of its property-related taxable income for 2013 and 2014 and 90% thereafter. A distribution yield of around 7 – 7.46% can be expected.

Foolish Bottom-Line

The emergence of many IPOs year-to-date shows that even big corporations are confident in the markets and are riding the wave together with these IPO launches. While risks of potential interest rate rise will result in higher borrowing costs, a slew of positive indicators like high occupancy rate and predictable stable cash flows means that REITs will still be well-loved by conservative investors out there.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice.   Motley Fool Singapore contributor James Yeo doesn’t own shares in any companies mentioned.