Jun 2015 Financial News

Stallion allows liquid property investment

Jun 04, 2015

Director of Stallion Property Trust (SPT), Joseph Rahael, says one of the risks associated with real estate investment is illiquidity, and that a new investment opportunity backed by his family will provide liquid access to a portfolio of properties.

SPT intends to commence trading on the T&T Stock Exchange (TTSE) in July 2015. It launched its Initial Public Offering (IPO) on May 18.

The trust is a real estate investment trust offering 5,072,957 common units, 100,000; three-year three per cent fixed income units and 180,945 seven-year 4.5 per cent fixed income unit. Collectively, SPT hopes to raise $382.4 million from the sale of units to the public with that money being used to pay off debt used to acquire the properties.

The trust was given a ‘AA’ credit rating by CariCris. An individual as well as a large investor, including banks and insurance companies and trade unions can invest in the trust once they register with a stockbroker.

Rahael spoke to the Business Guardian on Tuesday, at Amera Caribbean Development Ltd’s No1 El Socorro Extension office, San Juan.

Substantiating his point for an investment in SPT, Rahael said: “For instance, if you were to buy property as an investment and paid $1 million or $2 million for it, and you needed to sell that property to get $100,000 you couldn't sell piece of it, you have to sell the whole thing.

He added: “If you decided you wanted to sell the entire property, you’ll have to go to the market contact a real estate broker, put it on the market, you might have to price it, it may go up or down depending on what kind of feedback you get from the market place. When you finally get a buy, you then need to hire a lawyer, you have to take three months for it to close, the buyer may not close. There are all sorts of risks associated with selling the property and that Is the liquidity risk.”

Investing in SPT allows the investor to diversify their investments across nine properties without having to physically purchase any of those properties.

The risk with this investment is mitigated due to the diverse set of properties. Comparing that to an individual investor, he said: “If you are a single investor and you bought one property you have the risk associated with it. If a tenant you have there were to leave, you no longer getting rent, what do you do? You'll have to try to find another tenant, you'll have to spend money to renovate.”

The trust owns Endeavour Holdings Ltd (EHL). This company’s investment portfolio consists of nine properties with a total market value of $831.6 million, according to its prospectus. The properties are leased out to commercial tenants who are bound by the terms of the lease for a particular period, which means that the revenue from the properties is predictable.

The property managers of the trust are:
• Ernst & Young Services Ltd, financial advisers;
• Terra Caribbean, independent valuer,
• Brent Augustus & Associates Ltd, independent valuer,
• First Citizens Trustee Services Ltd, the trustee/administrator,
• T&T Central Depository Ltd, the registrar/transfer agent,
• First Citizens Brokerage and Advisory Services Ltd, the lead broker,
• Amera Caribbean Development Ltd, the property manager,
• Hamel Smith & Co attorneys-at-law, the legal adviser
• PwC Chartered Accountants, auditor.

Now that the IPO closes on June 12, director of the trust, Joseph Rahael spoke to Business Guardian to outline what SPT is about and the benefits of investing in a real estate investment trust.

According to Rahael, anyone can invest in SPT since the investor can invest any amount they can afford once they register with a stockbroker.

“When you are investing in real estate, you may not find a property that meets your budget. You may have $100,000 to invest, you may not find a property for that. Good real estate goes at a premium and it is not always available, so you may only find properties that are outside of your budget,” he said.

What’s a real estate investment trust?

This is an entity or trust with multiple owners that own or operate income-producing real estate. Rahael said publicly-trade trusts have the added benefit of being listed on the TTSE. When this is done, it gives the investor the flexibility and liquidity to sell their shares on the TTSE. This can be compared to the long drawn-out process of selling a property to obtain cash which can be time-consuming especially, if the investor needs the money right away.

First Citizens Trustee is the third party which is responsible for administering the trust. The trustees are the ones who operate the trust on behalf of the trust holders.

“The members of the public will be comforted in knowing that a third-party professional trust management company is operating the trust.”

Another benefit of investing in SPT is that the construction risk is eliminated completely.

Interest rates
Since September 2014, the Central Bank has been increasing its repo rate and, on Monday, it increased the rate by 25 basis points. Given that SPT is a real estate trust, Rahael said the increase interest rates should not deplete the value of the investors’ investment.

“What an investor should be looking at is what are the returns they can get in the marketplace, as compared to the returns they can get in the SPT.

“An investor may look at the repo rate to get an indication of where rates will be heading. Despite those repo rate increases the three-year government bond yield is below two per cent. The seven-year government bond is just over two and a quarter per cent. Our fixed income units for three years is paying three per cent. The rate on our seven-year is four and a half; much higher than the yields that are associated with investing in government bonds.”

He added that repo rates would have an impact on a bank’s lending rates.

“We are paying three per cent on the three-year fixed income units and 4.5 per cent on the seven-year fixed income units, this means that we are reducing our lending costs. It creates value for us because we are reducing costs of our debt and it creates value for the investor because they are getting a higher rate.”

Approved by SEC

Referring to SPT’s legitimacy, he said SPT had to submit documentation to the local Securities and Exchange Commission (SEC).

“We met with the SEC and got all requisite approvals. The TTSE has fully blessed this offering so all our approvals are in place, all of our marketing stuff has gone by them for their approval. The prospectus has been approved by stock exchange and the SEC.”

Now that the company has gone through the approval agencies, he said business people generally would want the red tape reduced as much as possible.

“Certainly there are areas of opportunity for improvement, particularly when it comes to timeliness. Both organisations—the SEC and the TTSE—were thorough in their review of the prospectus and all of our submissions. They were co-operative in our discussions.”

The prospectus, the financial statements, marketing documentation, amalgamation documents, articles of association, bye-laws and legal documents all had to be submitted to TTSE and SEC collectively.

 

Source:
NADALEEN SINGH
nadaleen.singh@guardian.co.tt
Business Guardian
Thursday June 4, 2015