REITs eyed to boost Singapore's IPO landscape

The sector accounted for almost half of the US$36.16b raised since 2009.

The pipeline of initial public offerings (IPOs) on the Singapore bourse is expected to rebound from the lacklustre performance recorded in 2018 as the real estate investment trusts (REITs), business trust (BTs) and healthcare sectors could help map the bourse’s turnaround story.

The 2019 IPO performance YTD has so far been encouraging and exceeding the number of offerings and listing proceeds seen during the same period in 2018, according to Tay Hwee Ling, Deloitte Southeast Asia and Singapore’s global IFRS and offerings services leader.

“There have been seven IPOs which raised $1.53b in 2019’s five-month period, which is close to almost triple that of 2018’s five-month performance, and more than six times that of the funds raised during the same period in 2017,” she told Singapore Business Review.

Amongst these offerings was an IPO launched by ARA US Hospitality Trust in May, the first listed US hospitality trust on the Singapore Exchange (SGX), which priced its 379.78 million stapled securities at US$0.88 apiece. Its expected proceeds are expected to hit US$498m.

This sentiment was shared by Tham Tuck Seng, capital markets leader at PwC Singapore, who added that international investors’ familiarity with the local bourse is expected to boost listing activity in the months to come.

“It is the most international exchange amongst the major exchanges in the world. PwC conducted a global survey to ask respondents which exchanges the issuers will consider beyond their home exchange in 2030 for an IPO, and 11% cited the SGX,” he said.

That said, he acknowledged that the factors that prompted increased volatility at the end of 2018, and continued caution in 2019, have not disappeared.

Singapore was not spared from heightened market volatility after IPO proceeds crashed to $730m across 15 offerings compared to the $4.7b reached across 20 IPOs in 2017, according to PwC’s Equity Capital Markets Watch report. Globally, the IPO market felt the consequences of trade and geopolitical tensions as the number of IPOs decreased from 1,081 to 870 for YTD 30 September.

Also read: Singapore IPO proceeds plunge to $730m in 2018

“The uncertainty of the trade row between US and China, and its impact on economic growth, and the uncertainty surrounding Brexit may drive the IPO market into a cautionary stance. This means investors will still remain more selective,” Tham noted.

It is for these reasons, according to Tay, which may have led to Eagle Hospitality REIT’s IPO falling flat despite being the largest Singapore float to date. The firm saw less than half of its stapled securities subscribed under the public offer, prompting joint bookrunners and underwriters to pick up the slack and take up the bulk of the undersubscribed securities.

DBS Bank, which acted as the sole financial adviser and issue manager, a joint global coordinator, a joint bookrunner and underwriter for the offering, was allocated 12.64 million stapled securities, followed by joint global coordinator, joint bookrunner and underwriter Merrill Lynch (Singapore) with 4.3 million stapled securities.

UBS AG, Singapore Branch and BNP Paribas, acting through its Singapore branch, were each a joint global coordinator, as well as a joint bookrunner and underwriter. Deutsche Bank AG, Singapore Branch, and Jefferies Singapore, were also joint bookrunners and underwriters for the offering. BNP paribas, Deutsche Bank and Jefferies Singapore were each allocated 1.77 million stapled securities.

But despite its less than stellar take-up, Eagle Hospitality REIT’s IPO still managed to raise approximately $792m (US$566m), which accounted for more than 50% of the total amount raised in the first five months of 2019 on SGX of $1.53b.

According to Tham, REITs and BTs are likely to continue to be the stars of the local bourse. Data from Dealogic noted that REIT IPOs made up 42 out of the overall 230 Singapore-listed offerings over the last 10 years. They also accounted for almost half or US$17.63b of the US$36.16b clinched since 2009.

Singapore’s REIT market ranks as the sixth largest in the world and third in Asia with a market cap of US$53b as February 2018, according to boutique real estate fund manager Q Investment Partners. The market value of the S-REIT sector has expanded by more than 200% over the past 10 years, data from SGX Research show.

Although S-REITs have trailed behind the benchmark Straits Times Index at the start of 2018, the sector rallied and caught up in Q4 2018 as the Fed assumed a more dovish stance. In November and December 2018, S-REITs were amongst the best-performing sectors in SGX registering total returns of 2.3% and 0.3% respectively, data from SGX show, with most of those gains extending into 2019.

Also read: S-REITs hit average total returns of 13.6% in 2019 YTD

The REIT sector was followed by the construction and building industry which saw 33 IPOs and the professional services segment with 18 offerings.

Beyond the strong-performing REIT sector, Tham adds that the city could also bank on more healthcare and tech listings over the following months. Tay also observed a variety of interesting sector listings on the SGX including mining, industrial products and a theme park developer.

A report from PwC expects SGX to outpace the Johannesburg and Deutsche bourse to rank as the ninth most preferred listing destination by 2030, with 15% of issuers considering the possibility of a Singapore listing eleven years from now, up from the current 11%.

“SGX is a market leader… and can be the gateway for issuers to tap on multiple markets outside of the region. For instance, they now have partnerships with NASDAQ and Tel-Aviv Stock Exchange, which paves the way for more technology and healthcare companies to dual-list,” Tay said.