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Singapore Property News

Orchard Road neighbours vie for funds

Much in common between SPH Reit and OUE Hospitality Trust IPOs

Posted on 19-Jul-2013
By: Alvin Foo

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Orchard Road neighbours vie for funds

SOME wags are dubbing the almost simultaneous listing of two new Reits next week as the battle of Orchard Road neighbours.

Their respective flagship properties are diagonally opposite each other along the famous shopping strip, both playing host to top-end fashion labels.

Other similarities are shared between SPH Reit and OUE Hospitality Trust as both vie for investor funds at nearly the same time.

SPH Reit boasts Paragon as its flagship property, while OUE Hospitality Trust features nearby Mandarin Orchard hotel and the Mandarin Gallery mall.

Their public listings are set to be just 24 hours apart; their launches, too, were a day apart.

Both are similarly priced issues. SPH Reit is 90 cents a unit and OUE Hospitality Trust is 88 cents apiece.

While the two listings are going public at the same time, fund managers and analysts say there is easily enough interest out there to absorb both issues, given the recent improvement in market sentiment.

Mr Terence Wong, co-head of research at DMG & Partners Securities, said: "Things seemed to have improved from last month. For now, the market seems relatively open enough for both issues and is not as edgy."

Mr Hugh Young, managing director of Aberdeen Asset Management Asia, said: "It is certainly not the easiest of times to raise funds, but things have bounced back a little."

Both IPOs have been attractively priced, with similar yields and valuations to their retail and hospitality trust peers.

The trusts will each face concentration risks. For instance, Paragon accounts for 80.8 per cent of SPH Reit's gross revenue.

In the OUE trust's case, the hotel will account for around 73 per cent of net property income; the mall makes up the other 27 per cent.

For SPH Reit, it is backed by a household name and offers investors stable earnings with exposure to the suburban mall space. OUE's trust offers a higher yield with a visible acquisition pipeline.

Dealers said SPH Reit is likely to see keener public interest as the Reit sponsor is the more recognisable name to the man in the street.

As remisier Alan Goh said: "A lot of uncles and aunties are already very familiar with the SPH brand name."

SPH Reit also found favour with the institutional investors, with indication of interest of up to 42 times for the amount of placement shares offered.

DMG analyst Pang Ti Wee said SPH Reit is likely to have stable earnings as retail leases usually last about two to three years on average. Both Paragon and Clementi Mall are fully occupied.

The OUE trust has a variable rent component from the hotel which allows for upside sharing and has downside protection due to a $45 million a year fixed rent component of its master lease agreement, which mitigates the volatility of short-term stays by hotel guests.

The OUE trust also offers a higher potential payout, with a forecast annual yield of 7.46 per cent for the 2014 financial year, while the corresponding figure for SPH Reit is 5.79 per cent.

Analysts also note the acquisition pipeline of the OUE trust, with three potential hotel properties - the Crowne Plaza Changi Airport, Meritus Mandarin Haikou and Meritus Shantou China - that could be acquired.

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