Singapore REIT Market And The Indiabulls Listing

Mint has an article on how DLF and Unitech have put off their Singapore listing plan.

Unnerved by withering global equity markets, India’s two leading real estate developers, DLF Ltd and Unitech Ltd, have indefinitely postponed plans to list their real estate investment trusts (Reits) on the Singapore Stock Exchange until market conditions improve, in turn increasing pressure on them to find alternative means to fund projects.

DLF, which was looking to revive the initial public offer (IPO) of its promoter-owned company, DLF Assets Ltd, confirmed that it has postponed the IPO. It had initially planned to update the IPO documents in Singapore by May end or this month.

“We are not going to look at a Reit listing till market conditions improve,” said Ramesh Sanka, group chief financial officer, DLF. He didn’t say what kind of funding the firm would now look at.

Unitech is also not looking at a Reit listing in the immediate future. The company had planned to raise around $700 million (Rs3,000 crore) from the IPO in Singapore.

“At this point, Unitech Corporate Parks is not planning to float a Reit,” said Sanjay Chandra, managing director, Unitech. “We are not talking to any banks.”
Unitech Corporate Parks, the London-listed investment company of Unitech, hopes to sell three commercial assets to the Unitech Office Trust, the proposed Reit of Unitech.

The underperformance of recently listed property trusts is discouraging developers from raising money through this route, which, until six months ago, was considered the most promising way to raise funds.

Indiabulls Real Estate Ltd, the fourth-largest listed Indian developer raised only S$262 million from its Reit offering, less than the S$286 million it had initially sought. And Indiabulls Properties Investment Trust, which made its debut on the Singapore stock exchange on 11 June, has traded for three straight days below its offer price of S$1. Key bankers to the deal said it was a “tough’’ offer to pull off because of the weak sentiment in the equity markets.

While the article does a good job of highlighting the weakness in the Singapore REIT market, it has gone easy on the performance of the Indiabulls Property Investment Trust (IPIT). During the first three days of trading, Deutsche Bank, in their capacity as stabilization manager for the transaction, has purchased about S$20 million worth of units of IPIT (8% of outstanding units). Peering at the trading volumes, one finds that over 90% of the shares traded over Thursday and Friday were purchased by Deutsche Bank - a reflection of the absolute lack of investor demand at that price point. So, the clearing price for IPIT is probably lower.

With this insight in mind, it is fair to say that another avenue for moving assets around to boost valuation (DLF Assets to proposed Singapore REIT, Unitech Corporate Parks to Unitech Office Trust) is not viable in the near term.

IPIT Analysis
At this juncture, it is important to highlight that IPIT has the same assets viz. One Indiabulls Center and Elphinstone Mills, that were partly owned by Dev Property Development Fund (Dev), an Indiabulls Real Estate (IBREL) affiliate that was listed in AIM. (Dev, IBREL and Farallon owned 13%,40% and 47% respectively). Dev was merged into IBREL earlier this year. IPIT purchased these assets and about 85% of the consideration was to paid in the form of IPIT units.

Reading the IPIT prospectus, it is clear that through all these listings (Dev, IPIT) and mergers (Dev & IBREL), the extent of beneficial interest in these properties that has changed hands is not much. Farallon and IBREL owned 87% of these properties when the IPO of Dev took place in 2007. After this listing, they still own 85% of the two properties. One should also note that the IPIT units owned by IBREL and Farallon are subordinated (and locked in) and would be worth slightly less than what IPIT is quoting on the Singapore Exchange.

The IPIT propectus (available on the SGX website) is a recommended read for anybody who is looking to understand the structure of REITs, compensation for property managers/brokers and a list of tenants for the properties in One Indiabulls Center. The prospectus also has good background information on the Indian real estate market, the Mumbai market and the Parel micromarket.