Dynasty – Phillip

China Play

Company Overview

Dynasty REIT is Singapore's first RMB-denominated real estate investment trust established with the investment strategy of principally investing in income-producing commercial real estate located in the PRC.

The Offering

ARA Trust Management (Dynasty) Pte Ltd, as manager of Dynasty REIT is offering 893,162,000 to 900,832,000 units for subscription at offer price of RMB 4.40 – RMB 4.70 (S$0.855 – S$0.915) per unit.

Total gross proceeds of between RMB 5,050 mn and RMB 5,394.3 mn are expected to be raised from the offering. ARA will subscribe to S$100 mn (RMB 514.6 mn) worth of shares as show of support and confidence in Dynasty REIT.

Dual Currency

Dynasty will be the first listed REIT on SGX to be traded under a dual currency regime. Units will be quoted and traded in Renminbi (RMB) and Singapore dollars (SGD). Units will rank pari passu and be fully fungible, hence prices will be kept at parity through market forces. The market value of the Units will be computed based on the last done price traded on the RMB counter, which will be the primary counter for the Units.

Use of proceeds

Dynasty will use 61% of the funding to acquire the initial three properties for the portfolio. 34% will be used to pay down existing debt, 4% for transaction costs and the remaining 0.25% as working capital.

Property Portfolio

Dynasty REIT will have an initial portfolio comprising of 3 properties, (i) Nanjing International Finance Center (ii) Dalian Tianxing Roosevelt and (iii) Shanghai International Capital Plaza. The total GFA is 350,475 sqm with lettable area of 243,657 sqm. Average independent valuation is RMB 7,681.5 mn and if without DPU support, RMB 7,190.5 mn. Purchase consideration is RMB 7,406 mn.

Two unique terms are in place to ensure dividend yields will be elevated and adequate to attract investors.

a. DPU Support

Under this scheme, Dynasty will use RMB 491 mn raised from the offering to form the DPU support. That is, the amount will later be redistributed back to investors as dividend payouts.

No less than RMB 73.1 mn and RMB 137.5 mn from this DPU support will be paid in year 2012 and 2013 respectively. The support amount is expected to be fully utilized by 31st December 2017 and any balance will be returned to unitholders. In the event that more than 20% of the support amount is used for purposes other than distributions, consent from the Trustee would have to be obtained.

b. Waiver Period

The sponsor has agreed to waive entitlements from 2012 until the financial year ending 31st December 2017. Entitlements between RMB 6.9 mn to 7.2 mn for the forecast period 2012 will be waived; thereafter, between RMB 16.7 mn to RMB 17.3 mn for every financial year until the financial year ending 31st December 2017. The amount to be waived is fixed and will be distributed to the unit holders.

The DPU support and the waiver of entitlements are structured to boost dividend yields in the initial years of the IPO, hence attracting investors interested in high yields. For the forecast period of 2012, distribution yield is expected to be between 6.8% and 7.1% and in 2013, between 7% and 7.3%.

Without the DPU support and the waiver entitlements, the distribution yield is expected to be about 3.2% in the Year 2012 and c.4.1% in Year 2013.

Dynasty REIT will distribute 100% of income from listing date to 31st December 2013. The manager has also agreed to receive new units in lieu of fees until 2013.

Investors are advised to refer to pages 78 to 83 of the Prospectus for further details and information on DPU support and waiver entitlements.