NG BEI SHAN beishan@thestar.com.my
PETALING JAYA: Property heavyweight IOI Properties Group Bhd (IOI Prop) is
making a bold move into the Taiwan real estate as it proposes to buy a stake in
iconic skyscraper Taipei 101 for RM2.74bil (NT$25.14bil) at a time when the
ringgit is weakening.
The company acknowledged risk factors like fluctuations in currency exchange
rates and interest rates that accompanied the proposal on top of any potential
political, economic and regulatory changes.
The Taiwanese dollar has strengthened against the ringgit by 3% in a
year.
The hefty price tag of the 37.17% stake in Taipei Financial Center Corp that
owns Taipei 101 is about one-third of IOI Prop’s market cap.
An analyst told StarBiz: “IOI Prop’s move to seize the rare opportunity in
the global iconic building is justified by the estimated rental yield of more
than 5%, which is decent.”
Knight Frank Research said in a report earlier this year that the average
prime yield for Grade A offices in Taipei was 2.25%.
The opportunity to acquire the stake emerged as the seller, Taiwan’s food
giant Ting Hsin International Group, was under pressure to divest its stake
amidst food scandals in the island.
Ting Hsin is the second largest shareholder in Taipei Financial Center Corp
after Taiwan’s government-linked entities that control some 44.35%.
Taiwanese media reported that financial firm CTBC Financial Holding Co, which
already have a 7% stake in Taipei Financial Center Corp, was interested in the
stake.
However, IOI Prop managed to reach an agreement with Ting Hsin, which refused
to give up the prized possession a month back.
The acquisition required approval from the Investment Commission of Taiwan
and was expected to be completed by the first quarter of 2015. Market talk was
that IOI Prop was looking into establishing a real estate investment trust in
the long-term and the proposed acquisition could be a way to position
itself.
The analyst, however, was neutral on the deal as it would not have much
impact on the stock in the near-term.
“The potential comes from the long-term prospects of Taipei 101 but the risk
is that the group is entering a new market,” she said.
Most of IOI Prop’s investment properties worth RM2.46bil are in Malaysia
except for IOI Palm City
(RM303.45mil) in Xiamen, Fujian, China.
IOI Prop’s investment properties are worth RM2.84bil versus RM3.09bil for its
land held for property development.
Another analyst was more cautious as she opined that acquisition might be
earnings dilutive and that the
group could have allocated the money for
landbanking purposes.
The purchase consideration, which is expected to be funded via internally
generated funds and/or bank borrowings, could raise IOI Prop’s net gearing from
0.16 times to 0.4 times.
The firm registered cash and cash equivalents of RM531.01mil and borrowings
of RM2.06bil for the quarter.
For its first quarter ended Sept 30, property development accounted for 82%
IOI Prop’s operating profit while property investment made up 11%.
In the quarter, property development contributed RM311.3mil to the group’s
topline and RM124.3mil to its operating profit compared to property investment
which contributed RM28.5mil and RM17.1mil, respectively.
The property developer said the proposed acquisition provided an opportunity
for stable rental income and potential rental accretion in a well-located and
well-tenanted landmark building in the central business district of Taipei.
“Furthermore, there is potential capital appreciation due to the strategic
location of the property,” the company added.
The building houses a number of well-known companies including Google Taiwan,
Taiwan Stock Exchange Corp, KPMG and BNP Paribas and achieved an occupancy rate
of 96%. It is also served by the MRT Xinyi Line since the fourth quarter of
2013, which had improved accessibility and accelerated the take-up rate of
space, according to DTZ Research.
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