Reit listing candidates rethink flotation amid recent weak debuts

Singapore

WEAKNESS among recent Reit debuts appears to have made potential issuers hold back plans, casting a pall over the Singapore initial public offering (IPO) market, which has been supported by Reit listings in the past one to two years.

Last week, KBS Prime US Reit again delayed plans to file its prospectus for a Singapore Exchange (SGX) IPO after witnessing the weak post-listing performance of Eagle Hospitality Trust and ARA US Hospitality Trust, people with knowledge of the matter said.

KBS Realty Advisors, the US-based real estate private equity firm which has been eyeing a second Reit listing in Singapore since last year, had plans to list KBS Prime US Reit in early June.

Other deals in the pipeline include Ascendas-Singbridge Group's US$500 million IPO, backed by a portfolio of 33 high-quality office properties in the US, reported Bloomberg in November.

But industry sources said plans have been put on hold as the real estate firm, having been acquired by property giant CapitaLand, now focuses on reorganisation. Eagle H-Trust's and ARA H-Trust's weak landings would not have inspired confidence to go ahead either.

They pinpointed bad timing as the key reason for the poorer take-up and market performance, with both Reits coming on to the market as US-China trade tensions erupted.

Even Manulife US Reit, the first US Reit in Singapore, struggled initially, one banker pointed out. Manulife Financial Corp shelved its Reit IPO amid the Greek crisis in 2015, based on Reuters reports then.

Market uncertainty meant wary investors tended towards the familiar.

"Investors are allocating more capital to pure plays with names and geographies that they are familiar with," a source noted, comparing the demand from institutional and accredited investors for Frasers Centrepoint Trust's oversubscribed placement in May against the conspicuous absence of institutional cornerstone investors in Eagle H-Trust and ARA H-Trust. "Looking at fundamentals, both ARA H-Trust and Eagle H-Trust portfolios are very stable. But when markets are volatile, investors will prefer to stick to familiar sponsors."

"US Reits in general are still new to the Singapore market - it's a matter of education," said Choo Oi Yee, managing director and head of Singapore investment banking at UBS AG.

Windows for listing have also tightened due to volatile markets, according to the industry players. They were not able to predict if hopefuls would try again later in the year, but said any attempt would be challenging.

Caroline Fong, Manulife US Reit's head of investor relations, also flagged that there may be fatigue if there are too many Reits entering the market at the same time. Retail investors can be quite selective during market turmoil, she noted.

These troubles are plaguing the broader Singapore IPO market too, bankers BT spoke to said.

"Windows are getting shorter and investors are cautious on new issuances, with sentiment impacted by US-China trade talks," said Phua Tien Soon, head of equity capital markets at OCBC Bank.

Weak demand for its shares forced drug development firm Cennerv Pharmaceuticals to withdraw its application for an IPO in May. The Singapore-based firm had lodged a draft prospectus for a listing on the SGX's Catalist board on March 6.

UBS's Ms Choo echoed how timing has become more critical: "It's not just Reits - both Reits and corporate IPOs will have to be thoughtful of the timing given current market volatility."

Industry experts are watching the US-China trade saga closely in hopes that positive developments might lift the uncertainty clouding the market. "There's still quite a lot of liquidity in the system that will return when markets come around. We just need more clarity on US-China negotiations," Ms Choo said.

Despite the current caution, Manulife US Reit's Ms Fong does not think conversations on the Reits front will completely cease as they are a long-term initiative.

The Singapore Exchange and DBS have been busy marketing in the US, viewed as the current growth market, since Manulife US Reit got listed in 2016, she noted. "US firms will still want to speak to them and start planning."

In April, DBS' head of capital markets Eng-Kwok Seat Moey told BT the bank would bring more Reits to Singapore, particularly US-centric ones. The bank is working on "quite a number" of potential listings involving office and hospitality spaces, she had said.

DBS said Ms Eng-Kwok was unavailable to comment on the current outlook.

Commenting on the Reit's recent performance, Lee Jin Yong, CEO of ARA US Hospitality Trust's manager, said: "In general, equity markets have been volatile due to the US-China trade tension. It has affected all equities, not just Singapore Reits or those with US assets.

"We believe that over time investors will learn more about the trust and appreciate the resilience and attractiveness of the select-service segment within the hospitality asset class."