The listing of Sunway REIT re-opened Malaysia’s property trust market, coming just ahead of another benchmark IPO from the sector.
The real estate investment trust sector in Malaysia has long lived in the shadow of that in neighbouring Singapore. Listed REITs tended to be illiquid due to their small sizes, while the Singapore market thrived. When plans emerged in early 2010 for the listing of two Islamic REITs in Singapore - at the same time as the Philippines was pushing ahead with its first three property trust listings, each worth US$300m or more - Bursa Malaysia looked to be moving back even further into the shadows.
Sunway REIT, however, drew some attention back to Malaysia with its IPO in July, becoming the country’s largest REIT listing to date and spurring further interest in the asset class. It raised M$1.48bn (US$477m) from an offering of 1.65bn shares, equivalent to a 61.8% stake in the trust. The IPO priced at M$0.90 per share for a forecast 2011 dividend yield of 7.49%. There was an over-allotment option of 87.1m secondary shares and this was partly exercised in August with the sale of a further 45.29m shares.
The deal benefited from the support of four cornerstone investors, namely Singapore government investment arm GIC, Employees Provident Fund, Great Eastern Life Assurance (Malaysia) and Permodalan Nasional, which took up a combined 14% of the REIT. The book was said to be comfortably covered, with some big global property funds and regional long-only accounts taking part. Credit Suisse and RHB were joint global coordinators. They were also bookrunners with CIMB, HSBC, JP Morgan and Maybank.
Rival bankers criticised the varied composition of the REIT, which included three hotels, two shopping centres, two office buildings and a hypermarket, but investors bought into it as a chance to cash in on the growing population and spending power of one of Kuala Lumpur’s suburbs.
Tan Poh Chan, CEO of Sunway City
Singapore developer CapitaLand swiftly followed this deal with its first Malaysian REIT, called CapitaMalls Malaysia Trust. Bookbuilding for CMMT began immediately after Sunway REIT’s IPO was priced. Both deals were priced at the bottom of their guidance ranges in a tough market, but the fact that these two offerings were completed within a month of each other showed the strength of demand from local and foreign investors for the asset class.
Sunway REIT now has a total asset size of around M$3.5bn, compared with around M$1bn for the next biggest. It also stands out as the largest IPO in Malaysia year to date. “This paves the way for very active trading because foreigners will tend to trade the country’s biggest stock in any particular sector,” said Tan Poh Chan, CFO of Sunway City, the sponsor of Sunway REIT.
The REIT listing also opened up an attractive new source of funding for Sunway. “Last year, we had 60%-70% gearing, but, with this REIT listing, we dropped to almost zero. It provides us with big scale for expansion at a much faster rate,” said Tan. “It means we can move in a big way for land-bank acquisition and also investment for our pipeline for the REIT,” she added.
The plan is to maintain Sunway’s net gearing at below 50% in the future, building it up and then reducing it as assets are injected into the REIT. Tan said the company was now in a position to borrow up to M$1.2bn, if it needed to.
Sunway REIT’s shares closed at M$0.95 on September 17, compared with the IPO price of M$0.90. “Given the market volatility, we are pretty happy with the share-price performance,” said Tan. In particular, Sunway is pleased that, despite being a name more familiar to domestic investors, there has been enough buying interest to keep the REIT’s dividend yield at a similar level to that of CMMT, which has a footprint across Asia and is probably better-known to regional investors.
Tan acknowledged that domestic retail investors would probably need one or two years to become fully comfortable with the asset class. “Before Sunway and CMMT, most people in Malaysia still liked to put excess cash into fixed deposits at 2%-3% versus a REIT dividend yield of 7%-8%,” she said.
The next step for Sunway is to use the extra room on its balance sheet to look at expanding further afield. “It’s a good time for us to expand into China,” said Tan. “Malaysia will still be our base. However, to achieve sustainable growth we need to have a regionalisation plan.” Currently, Sunway’s overseas efforts are focused on a joint venture in Tianjin, which the Chinese government wants to develop into an international financial hub - a “second Shanghai”.
Meanwhile, the Malaysian REIT sector has received a welcome boost and the deals show there is ample investor demand. Axis REIT raised M$135.6m in August in a follow-on offering, equivalent to 22.4% of its existing capital. Other developers, including IOI Properties and Sunrise, are tipped to be next to launch REIT offerings.
Daniel Stanton
