SINGAPORE (Dec 10): Bloomberg reported on Nov 16 that Ascendas-Singbridge Group was “mulling” a US$500 million ($684 million) IPO of a recently acquired US portfolio. The Edge Singapore understands that Ascendas-Singbridge is looking to raise as much as US$600 million in an IPO, most likely in February 2019, after Manulife US REIT and Keppel-KBS US REIT have announced year-end results. Both real estate investment trusts are likely to test their recently internally restructured REITs to shield distributable income from the new US tax act implemented in December 2017.
The US-based S-REITs have followed certain rules to ensure that unitholders do not have to pay the hefty withholding tax of 30% levied on dividends. Among them are the widely held rule, where no single unitholder holds more than 9.8%, the US portfolio interest-exemption rule, and of course zero tax in Singapore from foreign-sourced income. (Ascendas-Singbridge owns 22.24% of Ascendas India Trust and 19.98% of Ascendas REIT.) A fourth rule, the implementation of a fiscally transparent entity, will be tested for the two US-based S-REITs early next year. If these tests are successful, it could open the door for at least four REIT IPOs with US assets.
On Sept 7, Ascendas-Singbridge announced it had acquired a portfolio of 33 office properties with a net lettable area (NLA) of 3.3 million sq ft in Portland, Raleigh and San Diego. According to the company’s press release, the properties are built on freehold land and are centrally located near major freeways, airports and mass transit, as well as retail outlets and amenities. Tenants include Fortune 500 companies such as Nike and Oracle.
“The US is the largest real estate market in the world, and Europe, together with the UK, is the second-largest in terms of transaction. If you want to be a global player, you cannot ignore these two markets,” He Jihong, chief investment officer of Ascendas-Singbrdge, says in a recent interview, when asked about the US acquisition. The US market is also very liquid and transparent, she adds.
“The US portfolio we acquired is focused on high growth, innovation and technology-driven cities. The properties are set in a campus-like environment outside the CBD. We call them urban metro areas,” He says. “A lot of big corporates such as Microsoft, Apple and Google are based outside the CBD. We like the trend of an innovation-driven economy.”
According to the company’s press release, the portfolio has a high occupancy rate, with tenants from industries such as technology, the internet, aerospace and biotech.
He declines to disclose the valuation of the US portfolio. “The 33 buildings with 3.3 million sq ft [of NLA] in three cities are more or less equally distributed,” she says.
For instance, Raleigh is famous for the first R&D park — the Research Triangle Park (RTP) — in the US, He adds. “It’s a very vibrant and high-growth city, one of the highest-growth cities in the US.” The North Carolina RTP, named for the three research hub cities of Raleigh, Durham and Chapel Hill, was established in 1951 and is the largest R&D park in the US. “The portfolio we acquired is very focused with very concentrated clusters in a campus environment, which we are very familiar with. Portland is up and coming and viewed as the new Seattle. San Diego is known for its medtech,” He elaborates.
Ascendas-Singbridge will also establish a regional office in San Francisco to provide functions such as asset management, business development and related services in the US.
Is there an exit strategy for the US portfolio? “There are different ways. We are still evaluating what would be a good way,” He says. “We are not allowed to disclose our yield. The properties have performed to market expectations. We like the portfolio. We will look at… the best way to hold those assets. We have different vehicles and we will evaluate them. We are long-term investors; we will not flip these properties.”
She points to two Australian office properties in Sydney as timely investments. Ascendas-Singbridge acquired Ascendas Innovation Place, formerly 100 Arthur Street, for the equivalent of $324 million in March 2016, and 66 Goudlburn Street for $270 million in November last year. “We made the investments during a very good time, in terms of stable yield and capital appreciation,” He says. “This will be the same for the US portfolio. The long-term fundamentals are very strong and we believe there will be capital appreciation in the future.”