Singapore’s Luxury Malls Face Off in IPO Contest

Paragon Shopping Centre, Singapore | Source: Shutterstock

SINGAPORE — Facing each other across Singapore’s Orchard Road shopping belt, the malls owned by Singapore Press Holdings Ltd. and Overseas Union Enterprise Ltd. have competed for shoppers. Now, they will compete for investors.

Overseas Union said last week it’s raising as much as S$614 million ($485 million) in an initial public offering that will include the Mandarin Gallery mall, one day after newspaper publisher Singapore Press said it’s seeking S$504 million from the IPO of a real estate investment trust with its Paragon mall as the flagship property.

“If they’re going to list about the same time, they will compete for the same pool of investors,” said Ong Kian Lin, an analyst at Maybank Kim Eng Research Pte, who said the trusts may seek investments from private banking clients. “If you leverage on the private wealth side, and if market conditions stay the same right now, it should go through.”

The trusts were offered to investors last week as Federal Reserve Chairman Ben S. Bernanke and the Bank of Japan both signaled they will maintain measures to boost their economies, giving the MSCI Asia Pacific Index and the measure tracking Singapore REITs their best week in more than two months.

“With the way interest rates seem to be stabilizing lately, investing in REITs again could become viable,” said Alan Richardson, a Hong Kong-based money manager at Samsung Asset Management, which oversees more than $100 billion globally. “Paragon is the crown jewel of Singapore’s shopping landscape. Mandarin Gallery is a good asset that’s been trying to improve over the years and reinvent itself.”

IPO Pricing

Both trust offers may price this week, according to people familiar with the matter. Indicative demand for SPH REIT’s stock sale has already exceeded available supply, said the people, who asked not to be named as the information isn’t public.

OUE Hospitality Trust will have an initial asset portfolio that comprises the 1,051-room Mandarin Orchard Singapore hotel and the four-story Mandarin Gallery mall, which houses stores including Emporio Armani and Marc by Marc Jacobs. Overseas Union said in the prospectus it has hotels that could be added to the trust, including the Crowne Plaza Changi Airport.

For Singapore Press, the Paragon counts Prada, Gucci and Jimmy Choo among its tenants. The trust will also hold the Clementi Mall in a western Singapore suburb. The newspaper company mentioned a limited pipeline of properties for the REIT as a risk factor in the preliminary prospectus.

Ready Pipeline

“If your REITs don’t have a ready pipeline of acquisition assets, it’s not as compelling from a liquidity standpoint for an investor,” said Christopher Wong, senior investment manager at Aberdeen Asset Management Asia Ltd. “At the end of the day, it’s going to be about the yield being offered to the market.”

SPH REIT, which is selling its units at 85 Singapore cents to 90 Singapore cents each, plans to offer a yield of as much as 6 percent based on fiscal 2014 projections. OUE Hospitality Trust, which is offered as a so-called stapled security comprising both a REIT and a business trust, is selling its shares at 88 Singapore cents to 90 Singapore each with a payout of as much as 7.5 percent for 2014.

The FTSE Strait Times RE Invest Trust Index tracking 28 REITs in Singapore offers a 4.8 percent dividend yield. The average payout on the Straits Times Index is 3.1 percent.

Singapore Press said in an e-mailed response to queries it can’t comment beyond the prospectus. Overseas Union also said in an e-mail it declined to comment.

Both share sales are managed by Credit Suisse Group AG. Goldman Sachs Group Inc. and Standard Chartered Plc are joint global coordinators for OUE Hospitality Trust’s listing, while DBS Group Holdings Ltd. and Oversea-Chinese Banking Corp. are working on SPH REIT.

Biggest Fundraisers

REITs and business trusts were the biggest fundraisers in Singapore’s IPO market in the past year, raising $4.16 billion, or 67 percent, of the $6.2 billion of stock priced, according to data compiled by Bloomberg.

The two share sales are being marketed to investors three weeks after global stocks fell to a four-month low, forcing companies such as Hopewell Hong Kong Properties Ltd. to shelve listing plans.

Singapore Press and Overseas Union are already differentiating themselves by the the properties they offer and the payout for investors, said Richardson at Samsung Asset Management.

“SPH probably has a bit more visibility in terms of its income stream, so they priced it at a lower dividend yield,” Richardson said. “OUE would have to pay a higher yield compared to a shopping mall because typically, hotel yields are more cyclical and variable than shopping mall leasing.”

By: Jasmine Ng, with assistance from Kenneth Foo and Jonathan Burgos; Editors: Linus Chua, Lars Klemming