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REITs in yield war; CMMT fixes IPO price, ups yield to 7.3%

KUALA LUMPUR: A yield war has ensued with both of the newest Real Estate Investment Trust (REITs) in town raising their yields to attract investors.

The expected distribution yields of Sunway Real Estate Investment Trust (SunREIT), which made its debut on Bursa Malaysia on Thursday, July 8, and CapitaMalls Malaysia Trust (CMMT), have been the subject of discussion lately, with investors and analysts expecting a "yield war" among the two REIT giants.

On Thursday, SunREIT and CMMT officially stepped up their yields in a bid to attract the same pool of risk-averse, defensive investors.

CMMT, which will be listed on July 16, has fixed the price of its initial public offering (IPO) to institutional and cornerstone investors at RM1 per unit, while the final retail price is fixed at 98 sen per unit, a two sen discount to the institutional price.

At RM1 per unit and a forecast distribution per unit of 7.16 sen and 7.45 sen for FY10 and FY11, distribution yields work out to 7.2% and 7.5%, respectively. Meanwhile, yields for retail investors work out to 7.3% and 7.6%, respectively. This represents an upward yield adjustment given the indicative retail offer price of RM1.08 and the indicative institutional offer price of RM1.10 in the prospectus.

Based on the offer price of RM1.08, distribution yields worked out at 6.6% and 6.9% for FY10 and FY11.  

SunREIT's yields too had improved with the institutional and retail offer prices fixed at 90 sen and 88 sen. Yields worked out to 7.6% for retail investors compared with the initial 6.9% in its prospectus.  The increased yield is in line with expectations of analysts, who had forecast SunREIT's revenue for FY10 at RM400 million to RM420 million, more than 20% above its FY11 forecast of RM329.5 million.

In a statement on Thursday, MIDF Consultancy and Corporate Services said the take-up rate for the 65.5 million CMMT units for the public was 1.07 times oversubscribed, while the 719 million units for institutional investors were fully taken up.

CapitaMalls Asia Ltd (CMA) CEO Lim Beng Chee said the REIT was priced at one of the tightest yields for a Malaysian REIT IPO despite the challenging conditions.

"The pricing is above CapitaMalls Asia's book value while at a discount to CMMT's valuation. This creates value for CapitaMalls Asia shareholders and provides a reasonable IPO discount for new unitholders, hence creating a win-win outcome for all," he said.  

CMA is the sponsor of CMMT. CMMT will be the largest "pure-play" shopping mall REIT in Malaysia, with a market cap of over  RM1.3 billion and an estimated free float of 58%.

CMMT has a total of 1.35 billion units and a total of 786.522 million units were offered to institutional investors in Malaysia and overseas, and to retail investors in Malaysia only.

CMMT had secured a number of cornerstone investors, including the Employees Provident Fund (EPF) and Great Eastern Life Assurance (M) Bhd, which have collectively taken up 90 million units of the institutional portion. It also received a good response from other institutional funds.

The move by CMMT to improve its yields did not come as a surprise, as analysts have long expected the company to offer more attractive returns as competition for retail investors has been stiff with the back-to-back listing of two of the largest REITs.

SunREIT, the first REIT and the largest IPO offering this year, opened one sen lower at 89 sen per unit compared to the institutional offer price of 90 sen. SunREIT, with assets worth RM3.7 billion and a free float of RM1.6 billion, ended its public debut 1.5 sen lower at 88.5 sen with 72 million shares done.

SunREIT is expected to offer a dividend of 6.7 sen per unit for FY11 ending June 30, or a gross yield of 7.6%, for retail investors based on the offer price of 88 sen.

CMMT's initial portfolio comprises three shopping malls: Gurney Plaza in Penang, an interest in Sungei Wang Plaza in Kuala Lumpur, and The Mines in Selangor. The portfolio has a total net lettable area of around 1.88 million square feet. CMMT also announced on Thursday that since there was no over-allotment of units in the IPO upon the closing of the institutional offering on Wednesday, there would be no stabilising actions that would be carried out by the stabilising manager.
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