So it is likely that Mapletree Investments will IPO more REITs (Mapletree Commercial Trust & Industrial Trust). My advice: Do not always be taken in by GLC and TLC IPOs. A lot of time we get the short end of the stick.
CitySpring, SP Ausnet and Singtel are cases where the GLC and TLCs aim is to offload or DUMP these lower yielding assets on us investors at the maximum price.
IPOs, when they group these buildings and make them into a REIT is a 2 step screwing process:
- An asset have a propensity to earn over a period of time. Through an IPO, the GLC and TLC get the money NOW. For us investors we have to bear the brunt of mismanagement, volatility, and negative and positive earnings changes. Which is a better deal?
- The management of these REITs are most of the time themselves. And the management, trustee and acquisition fees benefit them as they can always dump more things, whether it is yield accretive or not into these REIT.
- They want the maximum amount of money raised, so if the conditions are bad they shelve the plan. Only when they can get the most amount of money from us investors then they will IPO. Why would they want to share good assets with us? Most of the time you will buy an overvalue REIT.
Note its not only GLC and TLC IPOs but most IPOs have this agenda so it is the fact of how business is conducted.
Published July 15, 2010
GIC reaps big gains from Sunway divestment
Returns from selling assets to Reit exceed internal benchmark substantially
By EMILYN YAP
(SINGAPORE) The Government of Singapore Investment Corp (GIC) is sitting on gains from the recent listing of Sunway Real Estate Investment Trust in Malaysia.
GIC divested its stakes in Sunway Pyramid Shopping Mall and the Sunway Resort Hotel portfolio to the Reit, reaping returns that exceeded its long-term benchmark. The fund declined to reveal yield figures, but shared other details on the investments in an interview with BT.
GIC first bought a 48 per cent interest in Sunway Pyramid for RM182 million (S$78 million) in 2000. It later took a share in the mall’s RM500 million refurbishment exercise. This year, Sunway Reit bought the mall for RM2.13 billion.
In 2005, GIC bought a 48 per cent stake in Sunway Resort Hotel & Spa and Pyramid Tower Hotel for RM170.1 million. The hotels were given a RM39 million make-over and eventually went to Sunway Reit for a total of RM695 million.
GIC’s links with Sunway Reit’s parent, Sunway City Bhd, started in the aftermath of the Asian financial crisis. The developer was deep in debt and sold the interest in Sunway Pyramid, plus a 20 per cent-plus stake in itself, to GIC.
Sunway City’s fortunes have since picked up. Its chairman Jeffrey Cheah said in an interview last year that GIC ‘should be very pleased’ with its investments.
GIC Real Estate president Seek Ngee Huat does not disagree. The investments have been ‘very good for us’ and returns have ‘exceeded our internal benchmark substantially’, he told BT.
‘We are happy, but (Mr Cheah) should also be happy,’ he said. ‘And that’s how it works, a win-win for both sides.’
For GIC, the key is to find good partners and work with them to improve the value of the assets. Sunway City ‘had very good local knowledge, a very able team on the ground’, Dr Seek said.
At the same time, GIC took an active role in managing the Sunway properties that it invested in. ‘We’re able to continue to participate in the decision-making process, to bring to the table our global perspective. It’s not just the fact that GIC has a lot of capital,’ Dr Seek explained.
At Sunway Pyramid, asset enhancement works from 2004 to 2007 expanded the net lettable area from just under 900,000 sq ft to 1.69 million sq ft, making the mall one of the biggest in the Klang Valley.
GIC now holds a 5 per cent stake in Sunway Reit, for which it paid RM120.6 million. The Reit has eight properties with a combined value of more than RM3 billion, and its listing early this month raised around RM1.5 billion.
Sunway Reit has fallen below its offer price of 90 sen – its units closed at 88 sen yesterday. But Dr Seek is unperturbed. ‘The stock market has been very volatile. It’s too early to say how well it’s going to perform – only time will tell. We think there’s a lot of institutional support,’ he said.