Cold Market Forces Mapletree, JTC To Freeze Reit Plan

Source : The Business Times, April 23, 2008

JTC to sell assets worth $1.7b to private Mapletree trust instead

Timing is everything. JTC Corp and Temasek subsidiary Mapletree Investments are not proceeding with their earlier plan to list a real estate investment trust (Reit) owning a portfolio of JTC assets for now, because of unfavourable market conditions.

Instead, JTC Corp will divest the $1.71 billion worth of assets to a private trust sponsored by Mapletree.

It was more than two years that JTC Corp revealed plans to divest part of its property assets to a Reit and a couple of months ago that it announced it had picked Mapletree to manage the proposed Reit, after a 'rigorous selection process'.

This process eliminated Australia's Goodman group, which had earlier been reported as JTC's initial top choice. According to market talk yesterday Goodman apparently got cold feet and did not want to even attempt a Reit IPO. Instead, it wanted to buy the JTC assets to park into a wholesale property fund.

Mapletree, on the other hand, agreed to try a Reit IPO in the first instance but offered a 'backstop option' of buying the assets for a private trust if the IPO was not feasible. The end result appears to be similar - no Reit IPO for now. BT also understands that Goodman had wanted JTC to put some money into the wholesale property fund.

'There were probably other factors at play as to why JTC picked Mapletree and not Goodman, but it seems we're none the wiser now,' an analyst with a stockbroking house said.

Agreeing, a market watcher added: 'It looks like JTC has missed the window of opportunity for listing a Reit.'

Mapletree CEO Hiew Yoon Khong said in a release yesterday that in due course, the company will explore the possibility of listing the JTC portfolio as a Reit, possibly in combination with other Mapletree industrial assets. The transfer of properties to Mapletree is expected to be completed by July 1, 2008.

Tenants of the flatted factories, stack-up and ramp- up buildings in the portfolio will have a rental cap for a period of three years from this date. Mapletree will cap the increase in rent to a maximum of 5 per cent per annum based on JTC's July 1, 2007 posted rent.

The properties to be divested comprise 39 blocks of flatted factories in various locations including Kaki Bukit, Kallang Way, Loyang, Serangoon North and Tanglin Halt, 12 amenity centres, six stack-up buildings, a ramp-up building, The Synergy and The Strategy at International Business Park in Jurong and The Signature at Changi Business Park, plus a warehouse building at Clementi West.

JTC and Mapletree said in a joint statement yesterday that they will not be proceeding with the proposed Reit listing 'at the present time' based on the advice of the Reit financial advisors DBS Bank, Goldman Sachs and UBS AG. 'This is in light of the current volatile market conditions which are not conducive for a Reit initial public offering.'

JP Morgan analyst Chris Gee acknowledged that market conditions are indeed challenging for floating a Reit today. 'The cost of capital for Singapore Reits has risen over the last year. The average (distribution) yield spread for S-Reits over the 10-year Singapore Government Bond yield is 350 basis points today, up from a low of 80 basis points around a year ago.'

Cambridge Industrial Trust is currently trading at about 8.8 to 9 per cent distribution yield based on analysts' consensus earnings forecast for the year ending Dec 2008, and Ascendas-Reit, which has a larger and more diversified portfolio, is currently trading at about 6 per cent based on March 2009 consensus earnings, Mr Gee notes.

BT understands that the forecast 2009 net property yield on the JTC portfolio bought by Mapletree is about 6-7 per cent but rental growth prospects may be muted over the next few years because of the rental caps. 'You need time to let the portfolio mature. Income will also grow as occupancy rates in the properties rise, from the current portfolio average of under 90 per cent,' an analyst estimates. On a portfolio basis, the properties have an average remaining land lease of 50-60 years.

Mapletree is expected to look into combining the JTC assets it is buying with those of its privately-held Mapletree Industrial Fund - which has about $300 million of non-warehouse industrial properties in Singapore, Malaysia and China - for an eventual Reit listing at some point.

The three banks are expected to be compensated by JTC for their services thus far, but they'll miss out on lucrative underwriting fees they would have reaped had there been an IPO.