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Monday, November 5, 2007

Gapuraprima launches retail REIT

Most investors have probably never heard of the Gapuraprima group, even though it is one of Indonesia's largest real estate companies. If it goes through with plans to list a real estate investment trust (REIT) in Singapore, however, the group as well as the Margono family that controls it might soon be as well-known here as the Riadys and their Lippo group.

Margono: We want to sustain the company for the next 50 years, and we want to run it professionally

Last week, the Gapuraprima group took its first tentative step into the media limelight in Singapore with Rudy Margono, the youngest child and only son of the group's patriarch Gunarso Susanto Margono, meeting the local press at the Mandarin Oriental Hotel over lunch. Speaking with an accent that betrays his years at Telok Kurau Secondary School, the 37-year old Margono introduced his family's corporate empire, which had just listed its subsidiary PT Perdana Gapuraprima Tbk on the Jakarta Stock Exchange. He then outlined plans to launch a REIT in Singapore early next year in partnership with Malaysia's Amanah Raya Bhd, a trustee company owned by the country's Ministry of Finance.

"Properties in Malaysia and Indonesia are much undervalued," says Margono. "And, we have upside potential for rentals." The REIT will initially hold seven shopping malls in Indonesia and Malaysia with a combined worth of about US$250 million (RM835 million). Five of these malls are being contributed by the Gapuraprima group, while Amanah Raya is injecting the other two. According to Margono the Indonesian malls are located in second-tier cities like Bandung and Solo. "Capital appreciation in these two countries can be 10% to 15% yearly," he says. "We think it is very attractive for investors, especially long-term investors." Amanah Raya is the backer of a Malaysian REIT called AmanahRaya REIT, which has an asset size of RM649 million.

There are currently 17 REITs listed on the Singapore Exchange, only one, First REIT, is controlled by an Indonesian group. With a portfolio of healthcare related properties, First REIT was listed in October last year, and currently has a market value of S$209.5 million (RM482 million). That's about 58% the initial size of Gapuraprima REIT's property portfolio. The backer of First REIT is the Lippo group, and its units currently offer a forecast yield of about 9%.

Lippo group is launching a second REIT in Singapore jointly with Temasek Holdings' wholly owned subsidiary Mapletree Investments. The new REIT called Lippo-Mapletree Indonesia Retail Trust will have an initial portfolio of seven retail malls and shopping spaces within other retail malls. Three of the malls are located in Jakarta, two in Greater Jakarta (including Jakarta, Bogor and Tangerang), and another two in Bandung, the fourth largest city in Indonesia. The asset size will be around S$1 billion.

Units in the Lippo-Mapletree retail REIT are expected to be priced in the range of 78 cents to 91 cents per unit, and based on the price range, the annualised yield is expected to be from 6.4% to 7.5%.

Will the second Indonesian retail REIT trade at a higher or lower yield than the Lippo-Mapletree REIT when it's listed? Much depends on the market's view of the Margono family's ability to expand its property portfolio and lift its distributions per unit over time, and whether they develop a reputation for treating minority investors fairly.

Margono's father started out by building houses for the Indonesian military for as little as US$400 each. Today, at age 67, the elder Margono sits astride a corporate empire with US$500 million in assets. Like many other Indonesian corporate groups, Gapuraprima nearly went up in flames during the financial crisis, which triggered former president Suharto's fall after 31 years in power. "We survived because we do all segments," says the younger Margono, who began working for his father from the age of 18, while attending night classes at Jakarta's university. Demand for its low- to mid-priced houses remained stable during those turbulent years, he adds. "There was a need for those houses."

The Gapuraprima group is now in much better shape, assures Margono. It began venturing into developing commercial properties in 2000, and benefited from Indonesia's strong economic recovery since then. The country's GDP is now more than 35% higher than it was before the financial crisis, says Margono. "Mortgage rates are the lowest in history — what used to be 24% is now 9%. Purchasing power of the Indonesian people has also been growing in the last five years."

So, what's next for the Gapuraprima group? "We want to sustain the company for the next 50 years, and we want to run it professionally," answers Margono. Indeed, the listing of PT Perdana Gapuraprima on Oct 9 was a key element in realising this ambition. With a market capitalisation of S$184.5 million, the listed unit is the third largest listed property company in the country.

Launching a REIT in Singapore will surface more of the corporate group's assets into public markets and expose their management to investors. The capital it raises will be used to expand the group's business interests around the region, in countries like Malaysia and China. "Our company has a vision to develop [properties] in the Asian countries," says Margono.

It is not yet clear that he will succeed, but it looks like investors in Singapore will be getting a better glimpse of the inner workings of a portion of his family empire.

is a staff writer with The Edge Singapore)

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