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Eagle Hospitality Trust's IPO falls 6.4% on debut

The stapled group starts trading at US$0.78 IPO price but steadily loses ground to close at US$0.73


THE optimistic scenario painted by the manager for Eagle Hospitality Trust (EHT) failed to pan out when the trust slumped on its mainboard debut on Friday.

The counter shed 6.4 per cent from its initial public offering (IPO) price to close at US$0.73 on its first day of trading.

Salvatore Takoushian, chief executive and president of EHT's managers, had told BT last week that the lower-than-indicated IPO price was to "attract certain investors" and offer "more potential upside".

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The stapled group began trading at 2pm on Friday at its IPO price of US$0.78 but steadily lost ground as the session wore on. Some 23.1 million units changed hands, making it one of the most heavily traded counters on the Singapore bourse for the day.

Before EHT's debut, its managers had noted in a public filing on Thursday night that the public offer tranche of its IPO was undersubscribed, resulting in the joint bookrunners and underwriters having to take up the bulk of the allotment of unsubscribed securities.

A portion of the unsubscribed stapled securities was also re-allocated to the international placement.

"I think market volatility and dipping sentiment among investors could have been a reason behind why the public tranche was not filled," a trader told The Business Times.

About 60 per cent or 26.6 million stapled securities out of the 44.9 million available to the Singapore public were not taken up as at the close of the public offer on May 22.

Some 25.3 million of these unsubscribed units were then taken up by the joint bookrunners and underwriters, which comprise DBS Bank, Merrill Lynch (Singapore), UBS Singapore Branch, BNP Paribas, Deutsche Bank Singapore Branch, and Jefferies Singapore. DBS was also the sole financial adviser and issue manager for the IPO.

The remaining 1.3 million units were re-allocated to the placement to "satisfy an indication of interest received", the managers said. This placement tranche was fully subscribed.

One market analyst noted that while the undersubscription of EHT's public offer was "quite a disappointing outcome", this was not entirely unexpected, because it came shortly after ARA US Hospitality Trust's IPO, which may have caused fatigue among investors.

Singapore-based stapled trust ARA US Hospitality Trust debuted on May 9 and is now trading below its US$0.88 IPO price. It closed flat at US$0.865 on Friday.

For ARA's IPO earlier this month, its public offer tranche was 1.1 times subscribed, while the placement tranche was fully subscribed, according to its May 9 exchange filing.

The analyst added that the lack of interest in EHT's public offer might also be due to lower visibility and understanding of EHT's underlying assets.

Under EHT's IPO, a total of 580.6 million stapled securities were offered, comprising an international placement tranche of 535.7 million units and a public tranche of 44.9 million units.

There had been signs that institutional investors were lukewarm to the issue. Following a bookbuilding exercise, the IPO was priced at US$0.78 a unit, below an earlier indicative range of US$0.80 to US$0.81.

The analyst said that a downward revision of the IPO price "usually sends a weaker signal" to the market, contrary to the views of Mr Takoushian.

Based on the US$0.78 issue price, EHT said on Friday that its projected annualised distribution yield will be 8.2 per cent for May 1, 2019 to Dec 31, 2019, and 8.2 per cent for 2020.

Its first distribution will be for the period from May 24 to Dec 31, 2019, which the managers will pay by March 30, 2020. Subsequent distributions will be made semi-annually, for each six-month period ended June 30 and Dec 31.

EHT will distribute its entire annual distributable income for the period from May 24, 2019 to Dec 31, 2020. Thereafter, it will distribute at least 90 per cent of its annual distributable income.

EHT is a hospitality stapled group comprising Eagle Hospitality Real Estate Investment Trust (Reit) and Eagle Hospitality Business Trust.

It has an initial portfolio of 18 full-service hotel properties, ranging from upper midscale to upscale hotels in the US.

The listing of EHT brings the total number of SGX-listed Reits and property trusts to 44, with a combined market capitalisation of about S$100 billion, SGX said on Friday.