In Monday's newspapers, there was a full-page advertisement announcing that an entity named Stallion Property Trust (SPT) would make an initial public offering of common and fixed income units starting on May 18.
The promoters of the SPT IPO propose to raise $382.39 million by selling the following units to the public:
�2 Some 5,072,957 common units at $20 each = $101.45 million
�2 Some 100,000 three-year, three per cent fixed income units @$1,000 = $100 million
�2 Some 180,945 seven-year, 4.5 per cent fixed income units @ $1,000 = $180.94 million
The prospectus indicates that SPT is looking to raise the $382.39 million from the public in order to pay off debt of $361 million, which was used to acquire nine properties.
The underlying asset of the Trust is a 100 per cent ownership of a company called Endeavour Holdings Limited, which owns a diversified portfolio of nine commercial real estate properties.
Those nine properties are four outlets of the local pharmacy chain SuperPharm at Valsayn, Chaguanas, Westmoorings and Gulf View. Also included are Price Plaza North, Price Plaza South, Brian Place in St Clair, Tumpuna Park warehousing and industrial compound and a building leased to the Ministry of National Security in Aranjuez.
The four directors of SPT are John Tang Nian, a retired banker, Amalia Maharaj, an attorney at Pollonais, Blanc, de la Bastide and Jacelon, John Aboud, business executive, and Joseph Rahael, property developer.
Rahael is part of the privately owned, Rahael-family owned Amera Corporation, which has been one of the most active commercial property developers in T&T in the last decade.
Rahael-owned companies are responsible for Briar Place in St Clair, and the new building on Queen's Park West, a stone's throw away from the US Embassy building. Rahael-owned companies were also involved in the controversial Milsherv development in Tobago, and the financially troubled, billion-dollar Renaissance project in Shorelands.
On Friday night, Rahael responded to some questions that had been sent to him earlier in the week.
The questions were sent after Rahael invited the Business Guardian to conduct an interview with him in which he would give details of the IPO.
Among the questions asked were:
Q: Why is SPT attempting to raise money from the public based on an audit for Endeavour Holdings Ltd, which represents the financial position of EHL as at April 30, 2014?
Shouldn't the audit be more up to date?
A: The audited accounts for FY15 will commence shortly as our fiscal year end is April 30, 2015, however given the nature of the investment, which is rental income, the 2015 position will not be materially different and therefore rather than further delaying the IPO, a decision was made and accepted by the SEC, that the audited accounts for FY14 was sufficient.
(Author's note: Given the sharp decline in T&T's export earnings as a result of lower oil and gas prices, can it really be argued that "the 2015 position will not be materially different" to 2014?)
Q: The prospectus states that EHL's investment portfolio comprises nine properties that have a market value of $831.6 million. Who conducted the valuations on these properties and how recently were the valuations done?
A: The property valuations were conducted by Brent Augustus & Associates with the exception of Briar Place which was valued by Terra Caribbean. These valuations were conducted in January, April and October of 2014, and reviewed and accepted by PWC as part of their audit and their report.
Q: My understanding is that SPT is raising $382.39 million in order to pay off debt of $361 million, used to acquire the nine properties. What happens to the property acquisitions if the IPO is not successful?
A: These properties have been either built or purchased by EHL for many years now. It is an existing portfolio of already built and acquired properties with a history of proven cash flow and solid tenants with no construction or acquistion risk.
Nothing untowards happens to the portfolio in the unlikely event the IPO is undersubscribed. Any funds raised over and above the debt stays in the company as working capital /reserve.
Q: Why not opt to refinance the debt with the banks?
A: We are refinancing bank debt by going to the public. As you would be aware investors are still earning currently very low returns and the banks are still earning a spread in excess of five per cent. Therefore we are capitalising on that opportunity to give the general public an opportunity to earn higher returns whilst at the same time reducing our cost. (Author's note: The Central Bank increased the repo rate on four occasions between September 2014 and March 2015 in order to increase the returns on local, especially fixed income assets.)
Q: Why is there no mention of the Renaissance development in the prospectus and the unresolved issues involving nearly $1 billion owed to the two Canadian banks?
A: Not applicable. Although there is some common ownership, these are two separate entities with different ownership and no crossover issues.
Q: Will any of the money raised in the IPO go to pay off the Renaissance debts?
A: No. EHL debt only.
Mr Rahael also submitted additional information, which had not been asked for: "The shareholders are selling only 15 per cent of the equity and have placed a voluntary three-year sales restriction on their remaining 85 per cent thereby negating the issue of shareholders raising money for themselves and demonstrating their own long-term confidence in the company.
An analysis by the brokerage house WISE, released on Friday, estimated that a price/earnings (P/E) multiple of 14.61X based on the offer price of $20 per common unit.
A five-year projection provided by the issuer in the SPT prospectus estimated revenue of $54.3 million and profit of $46.3 million in the 2015 financial year.
For the 2016, the issuers project that revenue will decline by 28 per cent from $54.3 million in the 2015 financial year to $38.3 million in 2016. The issuers project that net profit will decline by 44 per cent from $46.3 million in the 2015 financial year to $26 million in 2016.
Despite the decline in net profits, SPT projects that it would be able to distribute $10.14 million in dividends to common shareholders.
The semi-annual cash distributions to common unitholders by the Trust is at the discretion of the directors of the trustee. It is projected that a minimum of 90 per cent of the Trust's available cash shall be distributed.