Friday, August 17, 2012

Far East H-Trust IPO priced at 93 cents

Business Times: Fri, Aug 17

IN the largest initial public offering (IPO) in Singapore this year, Far East Organization has priced the sale of its Far East Hospitality Trust (Far East H-Trust) at $0.93 per stapled security, representing the top of the indicated $0.86-$0.93 range.

Far East Hospitality is offering 329.4 million stapled securities - 267.6 million placement units and 61.8 million public-offer units - and a total of 376.3 million units to cornerstone investors. The offering also has an over-allotment option of 65.9 million units.

The offer price translates to a distribution yield of about 6 per cent and 6.3 per cent for the annualised forecast period of 2012 and projection year 2013 respectively.

"The IPO has received overwhelming demand from institutional investors, with the investment tranche being more than 30 times covered," said Matthew Song, head of Equity Capital Markets, SEA, HSBC. "More than 200 institutional investors came into the book. In terms of geographical breakdown, approximately 80 per cent were Asian investors, 15 per cent European investors and 5 per cent from US offshore investors."

The listing could raise up to $717.6 million, assuming an over-allotment option is exercised, of which the likelihood is high, said Mr Song.

Taking into account the amount attributable to the sponsor stapled securities, the managers intend to raise gross proceeds of $1.49 billion. Of this, every 0.98 cent to the dollar raised will go into acquisition of properties, while the remaining 0.02 cent will go into transaction costs.

As at the listing date, Far East H-Reit will have a working capital of about $1 million. Far East H-BT will be dormant and will require minimal working capital.

Asset-wise, the trust, which is sponsored by a group of companies under Far East Organization, is expected to have seven hotels and four serviced residences. This will yield 2,163 hotel rooms and 368 serviced residence units valued at more than $2.14 billion.

The trust will also be able to leverage an acquisition pipeline through the sponsor. Seven properties, which will add 1,242 hotel rooms and serviced residence units, have been identified.

Gerald Lee, chief executive of FEO Hospitality Asset Management, in an interview with BT, said: "We have a very strong pipeline of projects that we will eventually like to add (to our portfolio). When they are added, the number of units (in the portfolio) will grow by 49.1 per cent and the value of the assets will easily double, which will make us a very big player, easily one of the biggest."

"In the last two years, Far East has acquired more than 20 sites and a few of these were sites with a mixed-use component... This is where being part of a big company like Far East, a big player in the real estate industry in Singapore, would allow us to have a growing pipeline of interesting projects," he added.

Mr Lee also said that he is interested in beefing up the corporate bookings for the hotels managed by the Reit. He said: "Right now, we are getting about 43.6 per cent (of hotel room bookings) from corporate contracts... We'd like to move it closer to 50 per cent."

Far East Organization is currently restructuring its hospitality and health-care businesses, with the IPO a key endeavour in the evolution and transformation of the organisation.

The public offer will open at 9am today and close at 12pm on Aug 23. The stapled securities are expected to commence trading on Aug 27.

DBS Bank, Goldman Sachs (Singapore), HSBC (Singapore) and OCBC are the joint bookrunners and underwriters in the offering.

Martin Koh | 86666 944 | R020968Z
Sherry Tang | 9844 4400 | R020241C
Senior Sales Director
DTZ Debenham Tie Leung (SEA) Pte Ltd (L3006301G)

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