China-based EC World REIT launched on Singapore’s stock exchange last week, becoming the first initial public offering on the city’s mainboard this year. The REIT, which is sponsored by Shanghai-based industrial conglomerate Forchn, features a portfolio of six properties in Hangzhou valued at $954 million. Forchn hopes to raise more than $250 million during the IPO, according to media reports.
This is the second time a REIT from mainland China has launched on the Singapore Stock Exchange, after BHG Retail raised $290 million from the IPO of its listed trust last December.
Shanghai-based Greenland Group has also been looking to launch a Singapore-listed hospitality REIT. The company’s original package of mainland hotel properties failed to attract adequate interest from investors, leading Greenland to sweeten the deal by promising to add hotels in Sydney and Los Angeles to the REIT’s pipeline. The Shanghai developer and its Singapore-based partner have yet to receive government approval for the listing.
EC World Focuses on Hangzhou Industrial Opportunities
In order to attract investors of its own, EC World REIT created a portfolio of two port facilities and four logistics projects, which between them count several state-owned organizations including China Tobacco Zhejiang Industrial and China Post Express Logistics among their current tenants.
Another logistics properties in Hangzhou currently owned by Forchn Holdings, could also be added to the REIT in the near future. If this were to happen, the total amount of floor space in the REIT’s portfolio would increase by nearly 55 percent.
That could be the first of many expansions both domestically and abroad for EC World REIT. Peter Lai, the REIT Manager’s chief executive officer, told the media that there are plans to explore China’s real estate market to acquire industrial properties and convert them into e-commerce logistics facilities should the opportunity arise.
Lai added that the REIT Manager will also pursue opportunities to acquire e-commerce assets in Singapore and other ASEAN countries in order to diversify its e-commerce portfolio and complement its domestic holdings.
Analysts Find Risks in REIT Plan
The expected annualized distribution yield in the forecast period for this year will be 7.1 percent and it will increase to 7.3 percent during the projection year of 2017. On the surface the yield may seem acceptable, but these totals don’t sit well with everyone.
In a report released by Religare Capital Markets, the group encouraged investors to avoid the REIT pointing out that the risks were relatively high with the low yield failing to adequately compensate for these.
The report also noted questioned the trust’s lack of geographical diversity, and there are potential issues regarding the REIT’s overreliance on master leases from Forchn.
Forchn will retain a 45 percent stake in the trust with cornerstone investors BOCOM International Global Investment Limited, Bosun International Holdings Ltd, and Sunkits Resources Limited holding on to another 30.8 percent.