Specialised property draws private money

In this issue:

• Warburg Pincus and Lendlease win bid for life science real estate
• SeaTown raises over US$1.3 billion for second private credit fund

Greetings dear reader,

Asset manager Warburg Pincus and real estate group Lendlease last week announced the first acquisition for their jointly owned property platform, shelling out S$1.6 billion to buy a portfolio of assets in Singapore from entities associated with alternative assets manager Blackstone and Singapore businessman Lim Chap Huat.

The properties were previously held by Soilbuild Business Space Reit, which was taken private by Blackstone and Lim in 2021 at a valuation of S$700.3 million.

When the offer for Soilbuild Reit was first announced, the real estate investment trust had a net asset value (NAV) of S$750.1 million. For the purpose of the deal, an independent revaluation was conducted that took the Reit’s NAV down to a range of between S$699.2 million and S$715.7 million.

The Singapore assets in the portfolio – consisting of 10 industrial properties – were revalued to a range of S$1.06 to S$1.08 billion, representing a decrease in carrying value of between 39.6 and 56.1 per cent.

In their joint announcement, Warburg Pincus and Lendlease did not specify the exact properties they are acquiring. My colleague Jessie Lim, however, has been told there are seven assets in the portfolio.

This means not all the Soilbuild Reit properties were part of the sale, and it also means Blackstone and Lim have managed a respectable exit. One market observer told Jessie that the yield on the transaction appears “very compressed”.

Why the willingness to pay? What implications might this deal have for investors? Read on for my take, as well as some stats on Temasek-backed alternatives manager SeaTown.

What’s happening?

The Warburg Pincus-Lendlease transaction was done for a new platform launched about a month ago to focus on life-science and R&D-related real estate in Asia-Pacific.

In private markets parlance, a platform is a company that a private equity manager uses to acquire smaller companies so it can build a market leader.

This 50-50 joint venture company (JVCo) was seeded with two Lendlease businesses: a life sciences project construction management business, and a specialised investment management business with an investment vehicle called Lino.

Lino joined the JVCo in purchasing the portfolio of Singapore assets from Blackstone and Lim. It also owns Leaf Minatomirai, which is a 24,000-square-metre innovation and R&D workplace in Yokohama, Japan.

The Leaf building was first completed in 2004, and more than half of its rental income came from retail tenants. IDC Otsuka, a furniture retailer, accounted for 43 per cent of rental revenue in 2022.

Lendlease completed an extensive refurbishment of the property in February this year, more than doubling the rental from office space – to 72 per cent from 31 per cent.

This asset enhancement initiative was also undertaken with R&D clients in mind. Lendlease put in several features it knew R&D tenants would ask for, including high ceilings; a lobby cafe, co-working space and concierge; and sufficient seating for informal meetings and gatherings.

Leaf’s repositioning happened as the impact of Covid-19 was working its way into the property market: more shopping was taking place online, and more people were working from home.

R&D, however, isn’t something that is easily done from one’s living room or study – which is probably why Warburg Pincus has decided to make life science and R&D the foundation of its joint venture platform with Lendlease.

As Christine Li, Apac head of research at property consultancy Knight Frank, told my colleague Jessie, the market is seeing investors pivot away from the office sector to go into niche sectors such as life sciences, cold storage, data centres and build-to-rent.

Why it matters

In last week’s newsletter, I wrote about how the likely fall in interest rates could spur all kinds of activity in the property sector.

So, although the acquisition may seem richly priced, the JVCo may be hoping to outpace its competitors by outbidding them. Two other parties were said to have been in the running for this portfolio of assets.

Last month, Singapore-listed property group Ho Bee Land announced the sale of a 49 per cent stake in a biomedical sciences development called Elementum. The buyer, Fermium 257, was described as “representing the interest of a sovereign wealth fund”.

Weeks later, another Singapore-listed property group, Far East Orchard, announced it had established its first private fund in Singapore to invest in purpose-built student accommodation development opportunities in the United Kingdom.

Even as the property market recovers, it’s possible that action will cluster in parts of the industry perceived to have the greatest potential for growth. Given how much of Singapore’s market capitalisation is devoted to property plays, shifting trends in the industry could be meaningful and important to watch.

The big number: US$1.3 billion

That’s how much Temasek-backed alternatives manager SeaTown has raised for its second private credit fund.

The SeaTown Private Credit Fund II was launched in November 2022 and hit a first close of US$1 billion later that month, according to private markets data platform Preqin.

This roaring pace slowed quickly, however, and it turned out to be tough for the company to cross the targeted US$1.5 billion.

Preqin data shows fundraising globally for private debt has been slow across Asia, falling from US$12.4 billion in 2021 to US$11.1 billion in 2022 and US$7.9 billion last year.

Against that backdrop, Preqin’s vice-president and head of Apac and valuations Angela Lai told me SeaTown has actually done well under difficult circumstances.

“The latest close by SeaTown will move it up to third place for total capital raised from a fund manager in the Apac direct lending category,” Lai told me. “In our data, the average fund size for Apac direct lending funds is still below US$500 million.”

Lai said that in Apac, direct lending is a less dominant strategy than special situations or distressed debt because the banks are still dominant. Interest rates are also lower here than in the United States and Europe.

Even with SeaTown’s large close, Apac private credit fundraising is on track to fall further behind in 2024.

5 big reads

• Fed rate cuts have mixed impact on stocks, so don’t get carried away THE relationship between interest rates and stock valuations is complicated – affected by prevailing interest rates, macroeconomic conditions and sentiment. Rate cuts this time are unlikely to be a rising tide that lifts all boats.
• What’re your brand and technology worth? New valuation guidelines being developed for intangible assets ONE key update is that the standards will be refreshed to clearly define the role of artificial intelligence (AI) automated valuation models, as more valuers use AI tools to streamline the valuation process.
• Market’s contrasting reactions to Grab’s and Sea’s financials show that growth alone is not enough SHARES of gaming and e-commerce player Sea have surged 23.7 per cent since its results announcement, while those of on-demand delivery platform Grab have fallen 3.9 per cent.
• Celebrating excellence in annual reports to inspire the journey ahead COMPANIES could do better in providing comprehensive historical analysis, particularly on five-year trends, instead of focusing so much on their current-year performance.
• Greater awareness and government support are birthing an IVF boom PRIVATE healthcare providers are finding opportunities to expand organically and through acquisitions, and to work with governments on raising national birth rates.