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.