A 251-room hotel and service suites in Changi Business Park, near Expo MRT, takes up about 18.6% of the assets and 17.2% of the NPI. This is either crazy enough to work, or just crazy.
As Garlic & Butter notes, UE BizHub EAST's occupancy was 64.2% as of Apr 2013, but valuations applicable after 5 years (accounting for that period of income support) assume 95%. The hotel and service suite component's actual occupancy was 65% as of Jun 2013 but likewise assumed to be 70%-80% for valuation. It's also assumed that rents will stabilize near market levels rather than the current ones, and also grow 3% a year.
Also, as another section of the prospectus illustrates, on a psf on GFA basis, both valuations of UE BizHub EAST are much higher than properties in the same Changi Business Park like The Signature (MIT), 1,3,5 CBP and DBS Asia Hub 2 (A-REIT) and even the recently transacted Eightrium (Soilbuild REIT). (Is anything in CBP not owned by a REIT?
) There is a long explanation by management why they believe their property commands a premium.
In any case, the offer price of 78c is at a slight premium to the NAV of 74c. Gearing will be
40.9% upon listing. S&P gives a preliminary credit rating of BB+, which is one grade below Sabana. Term loans are secured on the properties and repayable 3 and 4 years later, with interest rates at SOR plus a margin and assumed at 3.5%. It is said that management is fixing part of the borrowings with interest rate swaps, but not how much or at what rate.
UE is not actually the sponsor, although it has granted a ROFR for UE BizHub Central. The sponsors are Ho Lee Group and Kim Seng Holdings, and they also grant ROFRs for some other industrial properties.
No offence, but at this point in the industrial REIT scene it seems like we are scraping the bottom. We all like IPOs and new things, but it seems that there are already plenty of good industrial REITs in the market with attractive valuations and yields, even if they are not as high as 8.8%.
