JS Securities Limited - JS Research (March 31, 2022)

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JS Securities Limited – JS Research (March 31, 2022)

March 31, 2022

Karachi, March 31, 2022 (PPI-OT): TPLP: First milestone achieved for REIT Fund – I

The company recently secured the first round of funding worth Rs18.3bn for its REIT Fund – I. TPL REIT Management Company (RMC) plans to eventually raise the target fund size of US$500mn (~Rs90bn) in multiple rounds where funds through international investors shall be raised under a Master-Feeder Fund. Road shows to market the Feeder fund are expected to commence from Apr-2022.

Multiple income streams from upcoming projects under the new REIT Fund and continued robust demand for the construction sector keeps TPLP as an attractive bet at current levels.

First round of financing secured

TPL Properties (TPLP) held its Corporate Briefing Session yesterday, where the management apprised about is future projects. The company recently secured the first round of funding worth Rs18.3bn for its REIT fund – I where Rs11.3bn have been raised from local financial institutions while TPLP has invested Rs7.1bn being the strategic investor. The management shared that it expects disbursements of the investment proceeds by mid of Apr-2022. The management also shared that it targets the transfer of properties to the REIT scheme within Apr-2022. This transfer of assets to the respective SPVs would enable TPLP to realize a distributable gain of Rs4.3bn or Rs8.4/share in 4QFY22.

Second Round of financing to also kick in

TPL RMC plans to eventually raise the target fund size of US$500mn (~Rs90bn) in multiple rounds through international and local Investors. The funds shall be raised from International Investors under a Master-Feeder Fund structure, whereby Feeder Funds will be setup in International Jurisdictions with the objective to invest in the Master Fund i.e. TPL REIT Fund I. Road shows to market the Feeder Fund for round 2 of financing are expected to commence from next month as per the management. The feeder fund will be managed by TPL Investment Management, a foreign AMC incorporated in Abu Dhabi Global Market. TPLP has planned IPO of the REIT within 3 Years from the first financial close.

Multiple revenue streams ahead

The company plans to have multiple revenue streams going forward where major sources of earnings for the group would be dividend income from the newly established REIT fund, development fees for development of projects through TPL Development Management Ltd and management fees earned by the RMC. TPL Properties’ wholly-owned RMC would oversee the REIT fund investments. TPLP is currently pursuing four projects, one of them is a Logistics Park in which the Company has invested Rs600mn through an SPV by acquiring around 40% stake. The project has already started getting traction from major shipping and courier companies. The remaining three projects would be under The REIT Fund managed through separate SPVs which would include 1) A tech park 2) Luxury Residential tower – One Hoshang and 3) A master planned community with retail spaces and residential suites – Mangrove.

Dividend stream from REIT

Over the coming years, the REIT will provide dividends to the company by virtue of its holding (38% units) in the fund. According to the management, development work on the One Hoshang project is underway and the project will be delivered in 3 years’ time. As owner of the REIT Management Company, TPLP would receive dividends as the RMC earns management fees for managing the REIT fund. Main source of earning for the REIT management company would be management fee (1.5% of NAV), performance fee based on the NAV accretion and 15% carried interest on gain that it will likely earn as the SPVs achieve their intention of selling the inventory developed under them.

Higher profit in 1HFY22 backed by one-off

TPLP announced its 1HFY22 results on 28th Feb,2022 wherein the company posted consolidated after-tax profit of Rs3.48bn (EPS of Rs10.30) vis-a-vis Loss after tax of Rs8.3mn (LPS of Rs0.02) in 1HFY21. The sequential rise in earnings is mainly due to one-off in the Dec quarter. The company recorded a gain in its consolidated accounts of Rs3.6bn (~Rs7/share before tax) in lieu of revaluation of fair value of investment properties pertaining to Mangrove and Technology Park. The REIT properties will be re-valued periodically going forward and any increase in valuation of REIT units thereof would then flow in as income in the profit and loss statement for the relevant period. The company had a very low revenue due to the absence of contribution from Centrepoint. Company recorded lower finance costs as it had paid off debt obligations with the proceeds from Centrepoint sale.