Singapore’s booming economy is leading to the opening of more stores and malls. And the CEO of a new real estate investment trust (REIT), which is set to come to the market with a nearly $800 million IPO next week, says that’s going to have an impact on retail rents in the near future but the company's rents will outperform the broader market.
Mapletree Commercial Trust is being spun-off from Mapletree Investments and will begin trading on the Singapore Exchange on April 27. The company's assets include Singapore’s largest mall, VivoCity.
Amy Ng, Chief Executive of the Trust’s manager tells CNBC that VivoCity will be able to outperform the average rental growth of 2 to 3 percent for retail properties in Singapore because of its location.
“(T)he way that area is carved out, Mapletree owns the entire site. Across the road, there are some developers but not enough space for a big retail mall,” says Ng.
Mapletree Commercial Trust is forecasting average rent increases of nearly 6.5 percent for VivoCity between the current financial year and 2011-2012.
In all, the company is selling 1.12 billion units, including the overallotment option, at a price of S$0.88 per unit. The units are being sold to the public and anchor investors such as AIA. If the IPO succeeds in raising $788 million, it will be Singapore's second-largest listing this year after the $4.3 billion listing of Hutchison Port Holdings Trust in March.
The share sale will also reduce Mapletree Investments holding in the company to 40% (if the greenshoe option is exercised).
Ng says the company’s strategy is to offer investors stable income. It will pay unit-holders a yield of 5.7 percent in the first year and 6.2 percent in the second year. That means investors will get a 9 percent increase in the dividend yield between the two years, which Ng says will come entirely from organic growth.
Ng adds that the company isn’t planning to acquire any properties in the next 12 months unless “a very good opportunity presents itself."
The main reason is that Mapletree Commercial Trust wants to keep its powder dry because parent, Mapletree Investments has given it the right of first refusal to acquire 10 properties including HarbourFront Center and Mapletree Business City. Ng said that gives the company the comfort to focus on internal growth in the first year.
The company is also likely to move further into the office market given the fact that most of these 10 properties are comprised of office space.