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Mapletree closes US$1.3 billion private trust for student dorms

It plans to close a series of private trusts and later, launch an IPO when the portfolio grows to S$4-5b
Wednesday, March 22, 2017 - 05:50

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Mapletree's UK portfolio includes Hawley Crescent (above), which is near top universities in London such as Imperial College, University College London, King's College and Goldsmiths, University of London.

Singapore

MAPLETREE Investments has closed a private trust to hold US$1.3 billion in student-accommodation assets in the UK and the US - a move that makes this not only the first such product in Singapore, but also the first of a series of private trusts for the group.

The Temasek unit is also aiming to launch Singapore's first initial public offering (IPO) of student-housing assets when the portfolio grows to S$4-5 billion.

For a start, its private trust for the asset class - Mapletree Global Student Accommodation Private Trust (MGSA P-Trust) - will hold an 8,363-bed US portfolio of 10 assets, and a 5,910-bed UK portfolio of 25 assets.

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These properties were acquired by Mapletree over the past 12 months.

Mapletree said it will retain a 35 per cent stake in the trust, which has a five-year term, extendable by a year.

A total of about US$535 million in equity was raised - about £195 million (US$243 million) for the UK portfolio and US$291 million for the US portfolio.

The major investors are Great Eastern Life Assurance Company Limited, as well as DBS Bank and UBS AG, which are investing in the trust on behalf of their high-net-worth clients.

Mapletree group chief executive Hiew Yoon Khong told The Business Times that MGSA P-Trust is expected to pay an annual yield averaging 6-7 per cent on the back of an expected double-digit return on equity over the investment life. The targeted yield is in line with that of the four listed real-estate investment trusts (Reits) sponsored by Mapletree.

As significant as it is, this may be the tip of the iceberg, as the group plans to scale up its student-housing portfolio. Mr Hiew said in an interview: "We entered the segment on the belief that it is scalable. We want to scale this business to be a lot bigger, so our approach is to create, over time, a series of private trusts."

Mapletree will acquire assets on its balance sheet before seeding them into private trusts - a practice which, Mr Hiew said, ensures that the assets are stable and can deliver the desired returns post-syndication.

A second private trust will be syndicated when the next portfolio grows to US$1.5-2 billion in size, he added. "We are still evaluating possible acquisitions in the US and UK."

One "missing piece" in the group's student-housing portfolio is Australia, another major education market where the group is scouring for prospects. "We are also at an early stage of exploring continental Europe - Spain, Holland, Germany," he said.

Closing a private trust, as opposed to launching an IPO, creates quicker time-to-market and is more cost effective to set up and run. Private trusts also have an advantage over Reits, in that maintaining Reits now entail higher compliance costs, following some regulatory tightening last year.

But Mr Hiew added that the group may launch an IPO for student-housing assets when the overall portfolio reaches S$4-5 billion.

Judging by the pace at which Mapletree is growing its assets under management (AUM), the group will probably cross the S$40 billion mark by the end of this month, which is the close of FY16/FY17.

This means that the group may have already hit its five-year AUM target of S$40-50 billion by FY18/19. Its AUM currently span the office, retail, logistics, industrial, residential, corporate housing, serviced apartments and student-housing segments.

Mr Hiew said: "I think we will probably be closer to S$50 billion in two years." The group's non-Asian AUM, which now makes up 13 per cent of its total, will also likely grow at a faster clip than its Asian AUM.

Prompted by a projected slowdown in Asia, Mapletree has been diversifying into non-Asian markets in the past three years; this drift is expected to remain for the next two to three years, he said.

Last year, Singapore companies emerged the top cross-border investors in student-housing assets; some US$3.3 billion found their way into such properties, said real-estate data provider Real Capital Analytics.

Besides Mapletree, other Singapore corporates like GIC, Far East Orchard and Centurion have been active in this segment. Increased competition in the student-housing space will invariably lead to some degree of compression on the capitalisation rate or the rate of return.

But Mr Hiew noted the countervailing force of rising interest rates, which should slow down the cap-rate compression. He believes interest in real estate will hold up amid a still-tantalising yield differential between real estate and bonds for the time being.

"It is demonstrated in our syndication that there's still significant amount of liquidity in the Singapore market, and the appetite for real-estate yield products - given the low interest rates - is still quite healthy and strong.

"This liquidity will be around for a while; I don't think it will evaporate over a short period of time.

"In the case of MGSA P-Trust, investors will be able to reap strong returns from an asset class proven to be relatively anti-cyclical in nature, with the pursuit of higher education growing worldwide even during economic downturns," he said.

The stable income of the assets will be distributed to investors along similar principles as a Singapore-listed Reit. Distributions will be paid on a semi-annual basis in pound sterling for the UK assets and in US dollar for the US assets.

READ MORE: Mapletree eyeing greater expansion across Vietnam

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