Source : Business Times - 14 Jul 2008
Temasek unit ramping up property funds to lay base for consistently high ROE model
AN initial public offering for Mapletree Investments Pte Ltd, a fully-owned subsidiary of Temasek Holdings, could take place in the near future, The Business Times understands.
Based on recent valuations, the entity could have a market cap of over $5 billion.
When contacted, a Mapletree spokeswoman said: ‘We are ready for an IPO in terms of our business profile and track record. However, the decision to IPO the company will rest with our board and shareholders.’
‘Over the last few years, we have put in place processes and governance similar to that of a listed company, to ready ourselves for an eventual IPO. What will drive the IPO decision, however, will be the readiness and attractiveness of our business model and strategy as a real estate capital management company.’
A key internal threshold the group has to cross to be IPO-ready is that the ratio of assets under management (AUM) to assets owned by Mapletree must exceed 1.0. ‘As at March 31, 2008, our AUM to owned assets was 0.5 and the ratio currently is about 0.8, including the recently completed acquisition of the $1.7 billion JTC portfolio by a private trust led and sponsored by Mapletree. We expect the ratio to exceed 1.0 by March 2009,’ the spokeswoman added. The next target will be to grow this ratio to 3.0 within three to five years.
AUM refers to assets held in Mapletree-managed private and listed funds with third-party investors.
Growing the AUM business will enable Mapletree to earn more fee income from managing property funds as well as managing the properties owned by these funds.
‘Strong recurring fee income will be the bedrock of our strategy for delivering consistently high returns on equity (ROE) of above 10 per cent to shareholders,’ Mapletree’s spokeswoman added.
Fees collected from managing funds and the properties held by these funds generally tend to be more stable than the property development and ownership business, which is more cyclical and considered more risky from an investment point of view.
‘Our fee income made up about 10 per cent of total revenue for financial year ended March 2008 and we hope to grow this to 50 per cent in three to five years.’
One event that could help Mapletree reach the target of a 3.0 ratio for AUM to owned assets sooner is the much-anticipated flotation of Mapletree Commercial Trust, which will hold about $3 billion of assets including Vivocity, St James Power Station, Harbourfront Centre and some nearby office blocks.
This trust was to have been floated by April this year but has been held back because of adverse stockmarket conditions.
The investment proposition of a potential IPO for Mapletree Investment would be that ‘we offer a strong real estate capital management platform with an Asian focus for investors’, Mapletree’s spokeswoman said.
‘However, investors who want a more targeted approach, for example, India or China, can invest directly in our funds. So we offer a whole suite of investment opportunities,’ she added.
For the year ended March 31, 2008, Mapletree posted a 3 per cent dip in net earnings to $1.04 billion due to a lower net revaluation gain and higher net finance cost. Operating profit, however, rose 35 per cent to $146.9 million, on the back of first full-year contributions from VivoCity and St James Power Station and maiden contribution from The Beacon, a residential project at Cantonment Road.
Mapletree’s revenue jumped 69 per cent to $365.6 million.
Shareholder funds increased 28 per cent year-on-year to $4.4 billion as at March 31, 2008.
That could potentially translate to a market cap of more than $5 billion, assuming that Mapletree shares hypothetically trade at a 23 per cent premium to its net asset value. The 23 per cent premium was the peer mean based on the July 11 closing share prices of CapitaLand, City Developments (after taking into account investment properties at valuation), Keppel Land and Singapore Land.
Mapletree Investments manages six property funds, including the listed Mapletree Logistics Trust. The group had $3.1 billion of AUM as at end-March 2008, a 94 per cent jump year on year, while Mapletree’s owned assets rose at a slower pace of 45 per cent to $5.7 billion.
Recently, the group formed a joint-venture private fund with Arcapita Bank to hold the $1.7 billion portfolio of properties acquired from JTC Corp. In April, Mapletree launched an India-China fund that has so far bought $600 million of assets. These initiatives will drive fee income revenue, which increased nearly 50 per cent to $29 million in the latest financial year.
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