Singapore's Reit market of US$21.6 billion is only second to Japan, which has a Reit market capitalisation of US$46 billion.

The third-largest Reit market is Hong Kong with a market capitalisation of US$8.5 billion, followed by Taiwan (US$1.7 billion), Malaysia (US$1.6 billion), Thailand (US$1.5 billion) and South Korea (US$0.6 billion).

The Asian llisted real estate market is one of the most exciting and fastest-growing in the world. Our new chapter reflects the increasing interest of the participants and investor community in this vibrant market.'  - 2008 February 

Asian Reit market cap rises 66% to US$63b
27 new Reits were floated in Asia in first 11 months of 2006

Asia saw 27 new real estate investment trusts (Reits) being floated in the first 11 months of 2006. The new Reits boosted the total market capitalisation of Asian-listed Reits by 66 per cent to US$63 billion from about US$38 billion at end-2005, says a report released yesterday by CB Richard Ellis (CBRE).

The property consultancy also says the Asian Reit market will continue to grow this year.

CBRE attributes the strong showing in 2006 to buoyant equity markets and strong economies.

'Asian Reits will likely follow their present expansionary trend in 2007, as robust economic conditions support continued demand for property and a more benign interest rate outlook,' says CBRE's executive director for Asian Reits Danny Mohr.

As the Asian Reit market evolves, Reits with hotels, hospitals or even infrastructure projects are being offered, diversifying asset types beyond conventional office, retail and industrial property, CBRE says.

Singapore's Reit market was boosted last year by a flurry of initial public offers, the encouraging post-listing performance of recently launched Reits, as well as sustained high levels of acquisition in and outside Singapore, says CBRE.

Recent listings include CapitaLand's CapitaRetail China Trust (CRCT), which comprises seven retail malls in China, and First Reit, a healthcare Reit backed by Indonesian properties. Both were listed early last month.

CRCT's institutional tranche was 196 times subscribed, and its share price surged 59.3 per cent on its first day of trading.

'Singapore's conducive Reit regulatory regime and relatively competitive tax system favourably positioned Singapore to draw an increasing number of cross-border Reit listings, further consolidating its status as the regional Reit hub,' says Mr Mohr.

According to CBRE's report: 'Reits have been the bright spot in Singapore's capital markets, registering 20 per cent growth on average in the seven-month period to November, significantly outperforming the Straits Times Index, which rose 9 per cent in the period.'

Within Asia, Hong Kong, South Korea and Thailand were laggards in the Reit market. Each had just one listed Reit or property trust fund come on stream in the year to November.

Looking ahead, Mr Mohr warns investors to be cautious about the volatility in the equity market and an increasing divergence in Reit performance.

'The defensive characteristics of Asian Reits against market downturns have been somewhat undermined by investors' perception of Reits as a vehicle for speculation and the use of financial engineering by some Reits,' he says - by Uma Shankari    SINGAPORE BUSINESS TIMES   11 January 2007

Real estate investment trusts, or Reits, typically own and manage income-generating real estate. The income is derived either from rent or through interest from the financing of properties.

Nicholas Mak, a director with property consultancy Knight Frank, says Reits usually distribute over 90 per cent of their income to shareholders. One reason Reits have been getting so much attention of late is because of the Singapore government's supportive stance when it comes to the industry, he says.

WHY INVEST IN REITS?

'Investing in Reits is like owning a piece of real estate but without many of the risks that come with actually owning a physical piece of property,' says Mr Mak.

According to him, real estate is a 'bulky' investment. It cannot be divided easily among various investors. In addition, real estate is not liquid and requires large amounts of initial capital investment from investors. By contrast, Mr Mak says, Reits are divisible and more liquid. They also have the advantage of having tax transparency.

In addition, Citigroup highlights the following advantages of investing in Reits:

They provide potential for capital growth as well as dividend yield. Generally, Reits dividends are higher than equity dividends. They have also generally been higher than inflation.

• Reit income is only taxed once when it is distributed to the investor.
• Reits potentially allow an investor to invest in properties globally and is, therefore, less vulnerable to market fluctuations in one country.

  And, perhaps most importantly, investing in a Reit together with other types of stocks makes for a more diverse portfolio, say both Citigroup and Mr Mak. With a more diverse portfolio, investors will be more equipped to weather shocks.

RISKS OF A REIT

'The performance of a Reit actually depends on the underlying assets,' says Mr Mak. Therefore, if a particular sector goes into decline, then the Reit will as well. This could be a danger, especially when it comes to properties that are subject to sectoral risks, such as factories, cautions Mr Mak.

Also, the underlying assets Reits are based on are usually on leasehold land, Mr Mak notes. This means that as the lease on a piece of property shortens, the risk involved in investing in a Reit based on the property goes up, as investors will effectively be putting their money into a depreciating asset.

Another factor that could have a negative impact on Reits is interest rates, which are currently rising. As interest rates rise, the cost of making a new acquisition for the Reits manager increases as well. This, says Mr Mak, will lead to a decrease in the real value of a Reit.

Other things investors should bear in mind when looking at Reits, according to Citigroup, are:

• A Reits investor does not have any control over how the company is managed.
• Rental revenues don't vary much as rents are usually not volatile. Hence Reits don't normally see tremendous price appreciation or volatility.
• Reits have less options when it comes to reinvesting income, because it is compulsory to pay out dividends.
• The Reit market is still not well developed in many countries in the world.

A SAFER OPTION

'A share can be a higher risk option, but it also offers the possibility of higher returns,' says Mr Mak. Reits, he says, have a lower risk factor in theory as the rate of return is relatively fixed. The flipside of that, however, is that there is not as much opportunity for growth when it comes to Reits, as compared to traditional shares.

But Mr Mak explains that in more mature Reit markets outside Singapore, there are basically two kinds of Reits - Reits with stable yields and high-growth Reits, which are more risky. Reits were introduced here only in 2002. As the local Reit market matures, we can expect the same thing for Singapore, Mr Mak predicts.

CHOOSING A REIT

Citigroup says investors should bear the following things in mind when searching for a Reit to invest in:

• Reits with high dividend and earnings growth would not just mean higher payouts. In addition to that, dividend increases usually drive share prices up.
• As with all property investing, the location and type of property would affect the value of the Reit.
• In addition, demographic and economic growth trends such as population size and trends and employment growth will also help predict the future profitability of a Reit.

- by Uma Shankari    SINGAPORE BUSINESS TIMES    19 Dec 2005

REITS are key to property in the mainland
Catching up with regional rivals, the SAR is finding a new role

After being delayed almost a year, Link REIT - the world's largest real estate investment trust IPO and the first Hong Kong-listed REIT - finally made its way to a listing on the Hong Kong stock exchange on November 25.

Although its oversubscription was not as spectacular as the initial attempt last year, a 14.5 percent share price appreciation on debut proved Link REIT's attractiveness to both retail and institutional investors.

Unlike last year, Link REIT is not alone this time round. Several REITs are in the pipeline for listing on the Hong Kong stock exchange. Cheung Kong (Holdings) and Guangzhou Investment have publicly announced their plans to float Prosperity REIT and GZI REIT, respectively.

The distribution yield for Link REIT is about 6 percent, while GZI REIT is expected to offer a yield of about 7 percent. As such, Cheung Kong has taken steps to boost the yield on its Prosperity REIT from 5-5.3 percent to 5.31-5.73 percent in closing the yield gap between Prosperity REIT and its counterparts.

The rising interest rate has resulted in the yield spread of Link REIT shrinking from 2.84 percent in December 2004 to 1.35 percent at current distribution yield. The 150-basis-point yield compression puts Link REIT's distribution yield marginally below the average distribution yield of REITs listed in neighboring Singapore and Japan.

With the inclusion of Link REIT, the number of Asian REITs to date has increased to 43, with a total market capitalization of more than US$34.5 billion (HK$269.1 billion). In four years, the number of Asian REITs has increased more than 20 times, from two in November 2001 to 43 in November 2005. The Asian REIT market capitalization growth is no less spectacular, expanding 17 times in four years. On these impressive figures, Asia is emerging as the fastest growing REIT market in the world.

The future of REITs in Asia is compelling from both the demand and supply side. On the demand side, investors who view stocks as too risky and bonds as too conservative may want more REIT products. Low volatility, high dividend yield and prospects for long- term capital growth make REITs extremely competitive from an asset allocation perspective, especially in portfolio risk diversification. Coupled with inflation-hedged income streams, REIT matches the requirements of pensioners and pension funds. With an aging population in Japan, Hong Kong, Singapore and developed Western countries, the related growing pension liability is expected to add further demand to REITs in Asia.

On the supply side, REITs provide an efficient alternative which allows corporations such as Japan Airlines to lighten their balance sheets by divesting their non-core real estate assets, and governments to privatize their property holdings - for example, the Hong Kong Housing Authority.

REITs also provide an exit vehicle for property held directly by private funds such as ERGO, ING and Macquarie Bank. The vast amount of real estate assets in Asia also presents a huge supply opportunity for Asian REITs.

In Asia, it is estimated that total investable commercial real estate stock stands at around US$2.1 trillion. The Asia commercial real estate market is dominated by Japan with US$1.14 trillion in investable stocks, of which 92 percent are invested stock.

Of the four Asian markets, China has the second-largest investable commercial real estate stock, but the percentage of invested stock to investable stock - 46.2 percent - is the lowest.

The low percentage of invested stock in China implies the majority of the real estate is still concentrated in the private sector with a low degree of investor participation.

Real estate assets held in private hands or within companies that do not specialize in property are typically inefficient in terms of management and taxes. As the property market continues to develop and evolve, it is estimated that, in time, real estate ownership will shift from the private to the public sector - that is, REITs.

As China currently enjoys strong economic growth but does not have a REIT jurisdiction framework, it is likely to be a supplier of real estate to cross- border REITs. With a supportive REIT framework that allows cross-border investment, Hong Kong is poised to become the cross-border REIT hub in this region with significant domestic and cross-border listings. Hong Kong is catching up with the more developed Japan and Singapore markets while establishing itself as the gateway to mainland China's securitized property. - THE STANDARD     9 Dec 2005  KK Chiu is executive director and Tan Yen Keng is senior analyst at DTZ Debenham Tie Leung

MAS puts Reits industry in world league  

The Monetary Authority of Singapore yesterday issued revised guidelines for Singapore's real estate investment trusts (Reits) that have been hailed as putting the industry on the global stage.

Among other changes, the MAS has raised Reits' borrowing limit from 35 to 60 per cent and allowed deferred payment for acquisitions, but says this must be included in their gearing.

The guidelines also prescribe voting thresholds for unit holders to remove a Reit manager. Basically, a manager may be ousted if at least 50 per cent of unit-holders present and voting agree to do so. The manager and related parties are also allowed to vote. The 50 per cent is based on the number of units controlled by unit-holders present at the meeting.

'The greater ease in removing Reit managers could lead to more merger and acquisition activities like in the Australian Reit market,' said UBS Investment Research analyst Charles Neo.

The string of revisions announced last night by MAS includes bolstering the entrance criteria for Reit managers, pending legislative amendments to introduce a Reit licensing framework. Also, Reits must obtain two independent valuations of properties in deals with interested parties. MAS has also removed a 12-month moratorium from the initial public offer date, during which Reits cannot strike deals with interested parties.

UBS's Mr Neo said of the changes: 'These make Singapore Reit (S-Reit) guidelines by far the most conducive globally to list a quality Reit. It further supports my view that Singapore could rival Hong Kong to win the lion's share of US$25 billion cross-border and regional Reits opportunities by end-2010.'

Singapore's first Reit was floated a little over three years ago, and today there are seven Reits here with a total market capitalisation of $11 billion.

CapitaMall Trust Management's CEO Pua Seck Guan said: 'There is no Reits regime in the world that has gone to this extent in terms of promoting the industry and at the same tine protecting investors.'

Most significant for most Reits in yesterday's package is that they can now borrow up to 60 per cent of the value of their property assets - up from 35 per cent - so long as they obtain and disclose a credit rating from a major rating agency. This is expected to help S-Reits, especially when they acquire properties overseas and compete with Reits from other jurisdictions that have no borrowing limit - Japan, the US and Australia.

While having higher borrowings will also expose a Reit to risks in a rising interest rate environment or in a property crash, one check against Reits gearing too high is the mandatory requirement on disclosing a credit rating. 'If the ratings agency gives an adverse rating when a Reit gears too high, the trust's unit price will trade lower as investors require a higher return to compensate for the increased risk,' says CMT's Mr Pua.

UBS's Mr Neo said the current 30 per cent average gearing for S-Reits is too conservative relative to the US (60 per cent) and Australia (40 per cent), and particularly when Singapore enjoys one of widest positive carries - the spread between property yield and cost of debt - globally.

'Reits that will benefit most from the higher borrowing cap will be, firstly, shopping centre Reits; and secondly, trusts whose assets have the best combination of longer ground lease, long tenant lease tenure and high interest coverage ratio,' he said.

'I consider retail to be the best asset class - in particular suburban malls - because rentals are a lot more stable when compared with other asset classes. The impact would be positive. For example, if the Reit has a gearing of 30 per cent and assets of $3 billion, the impact of a $300 million acquisition - entirely debt funded, hence raising gearing to 36 per cent - could boost yield by 10 per cent at least.'

Another interesting feature of yesterday's announcement is the decision by MAS to allow deferred payments but to classify them as debt, and hence included in the gearing limit. Such payment structures, which artificially prop up a Reit's yield, came under scrutiny after Temasek Holdings chief executive Ho Ching warned in July of their potential dangers.

Her speech led to greater scrutiny of Suntec Reit's proposed $788 million acquisition of 11 assets from City Developments involving deferred payments. Suntec has since said it is calling off the deal, citing difficulty in getting regulatory approvals on time. CityDev has rejected Suntec's move.  - by Kalpana Rashiwala   SINGAPORE BUSINESS TIMES      21 Oct 2005

Singapore seen to have REIT stuff

Singapore real estate investment trusts have fallen off their peaks in recent weeks due to higher-yielding trusts coming out of Hong Kong, Malaysia and Thailand but the sector remains a buy, analysts say.

That's because S-REITs, as Singapore REITs are collectively known, have low risk profiles and offer yields that are still higher than most Singapore investments. There are also potential gains from acquisitions and asset enhancements, they add.

Fund managers and retail investors also appear to agree with this assessment, submitting bids in excess of S$20 billion (HK$92.4 billion) for Prime Real Estate Investment Trust's S$570 million initial public offering that closed last Friday. The value of applications received was the largest for a Singapore IPO since 1990, according to the Straits Times.

Prime REIT, the seventh property trust to be listed on the Singapore Exchange, closed 7.1 percent higher at S$1.05 on its debut Tuesday, after rising as high as S$1.13.

"The expectations for capital gains have muted, but S-REITs remain an attractive asset class compared to [Singapore] deposits and government bonds," says Grace Ho, who helps manage SG Asset Management's Asian Real Estate Dividend Fund.

S-REITs are trading at estimated yields of 4.5-4.8percent for this year, higher than the 1.7-2.1 percent payable on large fixed deposits and 2.9 percent yield on benchmark 10-year Singapore government securities.

While overseas REITs offer better returns, there are currency risks and the quality of assets and the regulatory environment may not be as good.

At an offer price of 98 Singapore cents a unit, Prime REIT provides an annualized distribution per unit of 5.12 percent for this year - above the distribution per unit for other S-REITs, but below the 6.3 percent yield offered by Thailand's CPN Retail Growth Property Fund and 5.75 percent offered by Malaysia's Axis REIT. CPN units were sold at 7 percent during their IPO while Axis REIT's were launched at around 8 percent.

More property trusts are expected to come out of Malaysia and Thailand in the coming months, while the Hong Kong Housing Authority is scheduled to offer its Link REIT before the end of this year.

In a briefing on S-REITs last week, JPMorgan's head of Singapore research Christopher Gee said that while the "supernormal returns" of up to 50 percent a year in the past two years are unlikely to be repeated, sustainable 8-9 percent per annum rates of total returns (distribution plus capital appreciation) can be expected.

Helping fuel distribution per unit growth are pending regulatory changes that will allow REIT managers to increase gearing to 60 percent from the current 35 percent limit, allowing S-REITs to generate higher returns.

Another change will permit partial ownership of investment properties, subject to certain guidelines, making it easier for REITs to buy assets in neighboring countries where laws require overseas investors to have a local partner, Gee adds.

Merrill Lynch analyst Sean Monaghan says the distribution per unit premium over government bonds in Singapore is in line with regional markets such as Japan and Australia, but growth prospects for S-REITs are better with the opportunity to increase yields by enhancing assets and through domestic and regional acquisitions.

"We expect all of the major S-REITs to announce international expansion initiatives over the next 12 months year," he says.

Both Monaghan and Gee rate CapitaMall Trust and Ascendas Real Estate Investment Trust their top picks in Singapore, citing the potential for acquisitions that are yield accretive.

Singapore REITs also possess a tax advantage over other forms of property investments, as earnings and dividends paid to local investors are not taxed, giving valuations an automatic lift of about 20 percent, which is the city- state's corporate tax rate, he adds.

But not all investors are convinced.

"I think REITs will still be popular in Singapore for a while due to their higher yield in a low interest rate environment. We are, however, less bullish as we believe the `easy money' era is largely over," says Teng Ngiek Lian, chief executive of Singapore-based Target Asset Management.

Teng says he believes the 4.5-4.8 percent yield on S-REITs is very much fair value with little upside potential, unlike Hong Kong, where the economy is growing faster and REITs can offer greater rental revision potential. -  DOW JONES NEWSWIRES   23 Sept 2004

Listed real estate market to expand
Experts say Reits will be driving interest with their high liquidity

With the Singapore and other Asian property markets generally on the uptrend, the listed real estate market will continue to grow in Asia, say industry experts. 

The Asia-Pacific's listed real estate equities make up only 2.7 per cent, or US$200 billion of the overall equity market, according to property consultancy CB Richard Ellis (CBRE) - which gives it plenty of room to grow.

'Australia is a very good example,' said CBRE Japan's president and CEO, Christopher Fossick. 'If you took the total real estate market in Australia, maybe 20 to 25 per cent of it would be listed.'

The United States is another market that has about a 20 per cent figure, according to the University of California, Berkeley's Robert Edelstein. In Singapore, property stocks and Reits make up more than 12 per cent of the total local stock market capitalisation, while globally, it's a 4.9 per cent share.

Driving investor interest, Mr Fossick reckons, will be real estate investment trusts (Reits). That's especially so in more mature markets, such as Singapore's, that have ageing populations.

Essentially, Mr Fossick believes that these investors will be low risk and will seek more stable income. Neither do they wish to buy raw real estate or put their hard-earned retirement funds into equities, which carry higher risks.

UBS Investment Bank's executive director of real estate (Asia) Daniel Scamps said investing in Reits also make sense financially.

They are attractive with their high liquidity, strong historical performances and how they have outperformed the broader equity indices.

However, industry players warn that Reits could also get more volatile going forward, as prices get higher and yields are compressed.

Another new opportunity for securitisation, which is still relatively new in Asia, is mortgage-backed securities, Professor Edelstein said.

Mortgage-backed securities are securitised interest in a pool of mortgage, usually residential, where all principal and interest payments (after deducting a servicing fee) from the pool of mortgages are passed directly to investors each month.

In the US, around 45 per cent of all single family mortgages are securitised, so the growth market in Asia, he believes, is enormous.

'The notion of home ownership will require a mortgage market, which will give the government an opportunity to get capital by liquifying the mortgages through mortgage-backed securitisation. And China's a place that needs enormous amounts of capital, so if you're looking forward 10 or 15 years, the real growth is going to be in the mortgage-backed securities business, particularly residential.' - by Alexandra Ho    SINGAPORE BUSINESS TIMES   13 Aug 2005

Excerpts of executive director and CEO of Temasek Holdings Ho Ching's  remarks - 29 July 2005

SINGAPORE -  The debut of Mapletree Logistics Trust brings the total number of Singapore listed Reits, or S-Reits, to 6. This includes an S-Reit comprising properties solely in Hong Kong. In due course, MapletreeLog too will include assets from around Asia.

Since the launch of CapitaMall, the market capitalisation of the S-Reit sector has risen 14-fold to more than S$10 billion. This is equivalent to a growth rate of 140 per cent every year for the last three years. Over this same period, the S-Reit sector has outperformed the STI Property Index by 92 per cent and the Straits Times Index by 100 per cent.

Numerous factors have set the stage for the birth and growth of the S-Reit market on the Singapore Exchange (SGX).

First, in the aftermath of the Asian financial crisis in 1997, more realistic asset prices had translated into acceptable yields. This allowed the capital market to intermediate between vendors and investors. The S-Reit market has also liquefied the relatively frozen physical asset market of large chunky properties.

Second, regulatory adjustments in Singapore have facilitated greater market efficiency:

• The gearing cap for S-Reits was raised from 25 per cent to 35 per cent of deposited properties in 2003;
• Tax-free status was extended last year (2004) to individual investors residing in Singapore;
• Earlier this year, we saw the remission of stamp duty for the acquisition of properties by S-Reits; and
• Tax rate for non-resident investors was also halved from 20 per cent to 10 per cent.

These moves allowed the S-Reit market to flourish.

Third, these regulatory changes also helped to lower yields. CapitaMall Trust made its debut offering with a maiden yield of 7 per cent back in July 2002. Today, it is trading at around 4 per cent. The average distribution yield is 4.5 per cent for the overall S-Reit market. The IPO of MapletreeLog was priced at a yield of 6.0 per cent. The closing price of 88.5 cents this evening gives an annualised yield of 4.6 per cent this year.

I don't know how MapletreeLog managed it - I can't help but notice that they also managed to open at an auspicious price of 88 cents this morning on top of the 43.88 times over subscription to be precise, as they told me.

Yield compression over the last 2-3 years is the result not just of improved efficiency in the S-Reit market. It also reflects the higher-than-expected capital gain from the growth in the S-Reit portfolios, as well as the confidence of investors.

Opportunities for Asian Reits

Looking ahead, there is still tremendous scope for Asian Reits to grow. There is a confluence of aging demographics and underfunded international pension liabilities in the developed economies. This structural trend will fuel the global search for investment returns in Asia. At the same time, Asia is hungry for capital to feed its growth.

This is an opportunity for Asian Reits to marry the structural shift in global demand for high-yield income products with the growing appetite for capital in Asia. For instance, the logistics industry in the Asia-Pacific region is expected to show an estimated compounded annual growth rate of 12.6 per cent over the next 4 years, between 2005 and 2009.

In comparison, the global equivalent growth rate is only 3.2 per cent. Reits like MapletreeLog can dovetail naturally into the expansion plans of their logistics customers by following them, and providing logistics real estate solutions for them in the region.

There is also a huge potential for conventional real estate companies and asset-heavy conglomerates to lighten their balance sheets. They can free up capital by offloading capital-intensive real estate assets into Reits. Even governments can impose better fiscal discipline and efficiency, by freeing up capital through Reits. A groundbreaking example is the Link Reit in Hong Kong.

Today, the global Reit market capitalisation is more than US$400 billion. This makes up 70 per cent of the total listed real estate market in the world in 2004. In contrast, the Asian Reit market is projected to account for only 17 per cent of the total real estate universe in Asia by 2006.

Clearly, there is a lot of head room for Asian Reits.

Against this exciting backdrop of opportunities in the region, sponsors and managers, regulators and policy makers, owners and investors, bankers, lawyers and accountants, the SGX, and other interested stakeholders can all play their part to develop a strong S-Reit market.

Though other Asian markets are now beginning to put legislation in place for Reits, there remains a distinct possibility for Singapore to carve out a role as the venue of choice for quality Reit listings in Asia. Regulators can make it conducive for overseas or cross border Reits to list here. This will both deepen and broaden our S-Reit market. Apart from the sectoral or geographical Reits, we can also develop Islamic Reits to meet Middle-eastern investor demands. Even conventional Reits can carve out Islamic tranches, as Reit structures are inherently Shariah friendly.

It would be an interesting challenge to see if Singapore can be a hub for another 30 to 50 of the top quality Asian Reits over the next 10 to 20 years. It will need bolder decisions, hard work and imagination from all stakeholders, especially from regulators and policy makers as well as market players, but it can be done.

Some risks and concerns

For Singapore to be a hub for Asian Reits, it is important to ensure that the Reit market here remains guided by the integrity of Reit managers, supported by savvy regulators and active stakeholders.

One benefit of the Reit market is its open doorway for retail investors and individuals to invest directly themselves in a new high yield asset class. Shopping malls, industrial, logistics and commercial assets would previously have been inaccessible to most retail investors. It was fortuitous that we had shopping malls in CapitaMall to kickstart the S-Reit market. Retail investors could simply take a walk around the malls to gauge whether the Reit is doing well or not.

I am please to note that retail investors have a relatively large representation in Singapore listed Reits. They account for 16 per cent of investments in S-Reits, compared to only 5 per cent in general equities. But it is also a cause for concern, as Reits are not risk-free investments. In any market, all it takes is one black sheep to taint the reputation of the other players and set the market back. How do we minimise this risk?

Role of board and management

First, I would like to reiterate the vital role that the boards play in protecting the collective interest of unit holders.

The importance of a strong and experienced board with a high level of integrity becomes even more critical, as more S-Reits venture abroad for more assets, or as more regional assets from different emerging economies and judicial regimes are listed here as S-Reits.

Normally, the role of a board is to guide and direct management, acting as an experienced guide, friend and mentor. To properly fulfill their fiduciary duty, it is wise for a board to keep a healthy distance from their management and not be held to ransom by their CEOs. It is crucial that boards have the courage to hire and fire CEOs. Their hardest test comes when they have to make a hard choice between high CEO performance and core institutional values.

As the Chinese say: 'Watch for danger in times of peace, be thrifty in times of plenty.' Without a culture of strong values and self restraint, success can lead to corporate hubris and CEO imperialism. Such hubris is often the seed of eventual disaster.

Next come the Reit managers. Apart from being real estate specialists with deep knowledge and experience in the market, trust managers must also be familiar with credit, financial, operational and regulatory as well as real estate and market risks. Financial transparency is especially important for Reit managers.

Potential management risks

Fundamentally, the strength of any Reit lies not only in the physical and financial quality of its assets and tenants, but also the integrity and business acumen of its managers in extracting and enhancing embedded value from the properties. The greatest risks are the subsequent poor assets acquisitions. Individual managers may also change over time, and asset acquisition norms may deteriorate.

Without a sense of fiduciary duty and moral obligation to the unit holders, a trust manager may ramp up the portfolio size indiscriminately without due care and regard for quality and sustainable value. This agency problem is even more acute if the trust manager is paid based on a percentage of the value of the portfolio it manages, and the size of acquisitions made. An incompetent or negligent manager can also simply store up future time bombs if they don't understand the risks involved. Let me illustrate with a few simple examples.

An irresponsible or incompetent trust manager could collude knowingly or unknowingly with financially troubled or desperate vendors. The latter needs cash and the trust manager needs more assets in order to earn more fees. The trust manager agrees to buy assets at highly inflated prices, and the vendor agrees to lease back the asset, also at inflated rents which are well above market rates. Prerequisite hurdle yields are technically met. And both the vendor and the manager walk away, happy to be 'winners' in an apparently win-win transaction.

In such a situation, the losers are the unit holders. In substance, they would be sitting on a capital loss right from the start, as the purchase price consideration far exceeds the fair market or replacement value of the asset. They would also be unwittingly saddled with a much larger credit risk than appropriate.

Imagine what happens if the economy takes a nose dive, and the troubled vendor goes belly up.

The trust manager would have to scramble to find replacement tenants. Rentals would realistically be much lower than the previously inflated level. The unit holders would be hit with a drop in distribution yield. The value of the asset in the trust will similarly take a serious beating.

Thus, in reality and substance, the trust manager would have destroyed value, through deliberate fraud or through incompetence, by poor asset acquisitions. In the worst case, poorly supervised Reits may even evolve into a nasty pyramid game for crooked managers.

Another potential way to circumvent short term investment hurdle rates is to defer issue of trust units to the future in an asset purchase. This may make the investment case look better initially. In reality, the pain will come later.

Such charades shore up short term performance indicators at the expense of longer term pain. Worse still, they leave little buffer for the Reits to weather future storms. If, for whatever reason, rental rates cannot improve or asset enhancements fail to raise operating income, such deferred financial burdens could become very painful for the unit holders.

It is therefore vital that unit holders are made aware of the possibility of subsequent dilution of distribution yield. They need to understand the true all-in economic cost of any acquisition, and not be taken in by the initial understated costs.

In substance, such deferred capital payments may be nothing more than a form of shareholder's loan. If so, they should be captured in the trust's gearing ratio at the point of purchase commitment. Not doing so allows a trust to circumvent the prevailing 35 per cent gearing cap imposed by the regulators.

Role of professional advisors

Bankers, lawyers and other financial advisors too have a professional and fiduciary duty to ensure comprehensive, timely and accurate advice to investors. As shown in the earlier examples, it is critical that they cut through artificial structures and financial constructs to assess the substance and potential risks of any transaction.

In their recommendations to unit holders, all critical information and advice should be put clearly and simply, so that retail investors can easily understand the import of their advice.

Role of regulators

The regulators and policy makers too can play their part to promote and foster a financially transparent and well regulated environment. This allows the market to perform fairly and efficiently.

Harmonising the tax regime will certainly help open up the S-Reit market up to an even bigger pool of international investors. Reducing or dismantling double taxation of S-Reits with foreign income is likely to attract more foreign Reits to list here.

Financial disclosure rules may need to be more prescriptive initially to help an emerging asset class like Reits to establish itself.

Given their responsibilities, trust managers too should be regulated and monitored - they are not just real estate managers, but should be highly skilled financial professionals as well.

Perhaps a mandatory credit rating from established credit agencies should be a requirement for S-Reits. Behind the credit rating is the underlying credit worthiness of the trust. This in turn reflects not only its financial health but also the credit standing of its key tenants. Such credit information will help unit holders to make more considered investment decisions, and serve as a trip wire for any deterioration in asset quality.

Measures like these will help support an orderly growth of quality players, build up the confidence and trust in the market, and minimise untoward risks.

Role of unit holders

At the core of the Reit market are the investors, both institutional and individual unit holders. Like shareholders, they have every right to question board and management decisions and actions. Smart investors will not allow Reit managers to expand their portfolios without cashflows which can meet prerequisite investment hurdles.

Reit investors should learn to scrutinise the different Reits and differentiate the strong from the weak.

For instance, a Reit with short term land leases is a portfolio of fast depreciating assets. Put simply, a portfolio of assets with say 10-year underlying land leases would depreciate at 10 per cent a year, so a distribution yield of 12 per cent is really a weak net yield of 2 per cent. Likewise, a top line yield of 8 per cent would actually be value-destroying. These seemingly high yield Reits would be poor alternatives to a portfolio of freehold assets with long term yields of 6 per cent.

Retail investors should also be cautious of Reit managers who are heavily remunerated by the size of the portfolios they manage.

Although the history of the S-Reit market is short, retail investors should begin to distinguish those managers who can consistently deliver or exceed their distribution growth projections through shrewd acquisitions, creative asset enhancement and effective capital and risk management.

As the S-Reit market continues to grow, global and local investors will also have more choices to pick from. In doing their own homework, individual unit holders can minimise the risks of following the herd and getting burnt by weak or unscrupulous managers.

Conclusion

Reits are an interesting high yield asset class that is just emerging in Asia. Apart from global and institutional investors, this can be particularly interesting to retail investors as part of their retirement or investment portfolio.

All of us have a part to play in building upon the initial success of the S-Reit market - investors and promoters, boards and managers, financial and legal advisors and professionals, regulators and policy makers.

As with all other investments, there will be risks for Reits too. Reits have failed in other markets - they are not one way up escalators for guaranteed gains. Investors have a responsibility to themselves to understand the various product offerings and their risks.

We must also remain vigilant and instill financial discipline and professional integrity amongst our trust managers. It will be our collective responsibility to guard against clever financial engineering to disguise inherent blemishes. With a high level of financial transparency and professional integrity, the appeal of Singapore as a venue for more Reit listings will be enhanced.

A growing S-Reit market would render greater depth and interest to our capital market. This will help to strengthen Singapore's position as a key regionalfinancial centre.  -  Executive director and CEO of Temasek Holdings Ho Ching   SINGAPORE BUSINESS TIMES   29 July 2005    

Temasek chief warns of hazards in Reits market
Danger lurks when Reits pay inflated prices for assets, lease back at above market rents

Temasek Holdings chief executive Ho Ching yesterday sounded the strongest warning yet on the dangers lurking in the Singapore Real Estate Investment Trust market.

She highlighted the risks when Reits pay highly inflated prices for assets and then lease back the properties to the sellers at well above market rents.

Ms Ho also singled out the potential hazards to investors when Reits managers circumvent investment hurdle rates by deferring the issue of units to fund asset purchases. And she explained why 'a Reit with short-term land leases is a portfolio of fast-depreciating assets'.

Her speech - at a dinner to mark the listing of Mapletree Logistics Trust (MLT) - stemmed mainly from concern for retail investors in Singapore-listed Reits.

Using easy-to-understand examples to make her point, Ms Ho warned retail investors that Reits are not risk-free investments. 'Reits have failed in other markets - they are not one-way up-escalators for guaranteed gains.'

Ms Ho's speech was delivered via a live video conference call last night as she could not return to Singapore in time from Mumbai because of bad weather.

MLT was sponsored by Mapletree Investments, a unit of Temasek. It is the sixth Reit to be floated on the Singapore bourse in the past three years.

'In any market, all it takes is one black sheep to taint the reputation of the other players and set the market back,' Ms Ho said. To minimise the risk, she called on Reit boards and managers, professional advisers like banks and lawyers, and regulators and unit holders to play their respective roles.

'It will be our collective responsibility to guard against clever financial engineering to disguise inherent blemishes,' she said.

On management risks, Ms Ho said the biggest is poor asset acquisition. 'Without a sense of fiduciary duty and moral obligation to the unit holders, a trust manager may ramp up the portfolio size indiscriminately, without due care and regard for quality and sustainable value.'

And the problem is even more acute if the trust manager is paid based on a percentage of the value of the portfolio it manages and the size of acquisitions made. 'An incompetent or negligent manager can also simply store up future time bombs if they don't understand the risks involved.'

She gave an example. A trust manager could collude knowingly or unknowingly with financially troubled property vendors. The latter need cash and the Reit manager needs more assets to earn more fees. So it agrees to buy the assets at inflated prices and the vendor agrees to lease back the property, at inflated rents well above market rates.

The Reit's investment hurdles are technically met and both sides can claim to be 'winners' in the deal.

'The losers are the unit holders,' Ms Ho pointed out. 'Imagine what happens if the economy takes a nose dive, and the troubled vendor goes belly up. The trust manager would have to scramble to find replacement tenants. Rentals would realistically be much lower than the previously inflated level. The unit holders would be hit with a drop in distribution yield. The value of the asset in the trust will similarly take a serious beating.'

The trust manager would have 'destroyed value, through deliberate fraud or through incompetence, by poor asset acquisitions'.

'In the worst case, poorly supervised Reits may even evolve into a nasty pyramid game for crooked managers,' she said.

As for the practice of deferring the issue of trust units to fund asset purchases, her warning was: 'This may make the investment case look better initially. In reality, the pain will come later. Such charades shore up short-term performance indicators at the expense of longer-term pain... If, for whatever reason, rental rates cannot improve or asset enhancements fail to raise operating income, such deferred financial burdens could become very painful for the unit holders.'

She said that 'in substance, such deferred capital payments may be nothing more than a form of shareholder's loan'. 'If so, they should be captured in the trust's gearing ratio at the point of purchase commitment. Not doing so allows a trust to circumvent the prevailing 35 per cent gearing cap imposed by the regulators.'

Singapore Exchange chief executive Hsieh Fu Hua, when asked if SGX would tighten application approval for Reits, said: 'We expect to see Reits as a continuing healthy segment of our market. It has grown extremely well. So it's in everybody's interest, including SGX's, to maintain this healthy growth level, especially as we are aiming to see SGX become the centre for Reits in the region.' - by Kaplana Rashiwala    SINGAPORE BUSINESS TIMES   29 July 2005

Ergo's Prime Reit to raise $500m next month
It's banking on high occupancy, stable rentals in Orchard retail area

(SINGAPORE) Ergo Versicherungsgruppe AG, Germany's second-largest insurer, is preparing to raise about $500 million selling shares in a real estate investment trust next month, said the manager of the trust.

'Our listing is anticipated to be around mid-August,' said Franklin Heng, chief executive officer of Pacific Star Prime Reit Management.

Prime Reit, the seventh property trust to sell shares in Singapore since July 2002, owns about $1.3 billion of retail and office properties in the city's main shopping district of Orchard Road, DBS Vickers Securities, one of the sale's arrangers, said in a report to investors.

The trust is touting high occupancy and stable rental rates in the Orchard Road retail district to attract investors seeking low-risk investments with steady returns, according to the report. Property trusts pay dividends from rental income.

DBS Vickers, Deutsche, JPMorgan Chase & Co and Macquarie Bank are managing the sale, Mr Heng said in a telephone interview. He declined to provide further details about the share sale or comment on the report.

Macquarie Bank, Australia's biggest investment bank, has the option to buy a 50 per cent stake in the manager of the trust and the property manager, Pacific Star Property Management, within six months from the day the shares are listed, DBS Vickers said. Sydney-based Macquarie Bank Group currently manages 12 listed property trusts in four countries.

The manager of Prime Reit will earn an annual base fee of 0.5 per cent of the value of the assets and a maximum performance fee of 0.3 per cent, DBS Vickers said. The trust and property managers are each 50 per cent owned by Ergo Trust, a wholly-owned unit of Ergo, which managed 13.8 billion euros (S$27.9 billion) of assets at the end of 2004, according to the report. Investmore Enterprises, an investment holding company incorporated in the British Virgin Islands, owns the rest of the managers, the report said.

The properties' weighted average lease term of 4.2 years from Jan 31 will provide 'certainty and stability in the level of future income', DBS Vickers said.

Prime Reit is also counting on a recovery in Singapore's office sector to attract investors to its share offering, said DBS Vickers, a unit of DBS Group Holdings, Singapore's biggest bank by assets. The trust hopes to benefit from the Singapore government's efforts to upgrade the Orchard Road area and double annual tourist arrivals to 17 million, boosting the economy.

To lure investors, Prime Reit will have to offer a higher return than the yields on billionaire Li Ka-shing's Suntec Reit and CapitaMall Trust, Singapore's biggest property trust. Yields on Singapore property trusts have narrowed by about 3 percentage points since May 2003.

Suntec Reit, which owns downtown Singapore office buildings and the city's biggest mall, yields about 4.7 per cent.

CapitaMall Trust, which owns six malls in Singapore, yields 3.9 per cent.

Prime Reit is 'heavily dependent on the relative health of the Singapore economy and the level of tourist spending', given that all its properties are in the city state, DBS Vickers said.

Singapore's economy contracted at a 5.5 per cent annual pace in the first quarter, prompting the government on May 17 to cut its growth forecast for 2005 to between 2.5 per cent and 4.5 per cent from an earlier range of 3 per cent to 5 per cent.

Prime Reit's debt is estimated at about 31 per cent of its assets, DBS Vickers said. The trust will probably distribute 5.11 Singapore cents a share in 2005 and 5.24 cents a share in 2006, DBS Vickers said. - Bloomberg    7 July 2005

Cheung Kong plans a Hong Kong-listed REIT

Li Ka-shing's Cheung Kong Holdings plans to sell shares in its first Hong Kong real estate trust, reviving the city's bid to be a center for investment in property funds.

Cheung Kong, which has two trusts traded in Singapore, decided its next one will be listed in Hong Kong after reviewing guidelines released this month by regulators, executive director Justin Chiu said.

Hong Kong has no property trusts on its exchange after legal action last year derailed what would have been the world's biggest such initial public offering. The market value in Sydney, Singapore and Tokyo of real estate trusts - which own buildings and use rental income to pay dividends - now stands at more than US$75 billion (HK$585 billion), according to Henderson Global Investors.

``With the revised rules in Hong Kong, the modest corporate tax rate that exists, there's still room for the REIT market to develop,'' said Chris Reilly of Henderson Global. ``We expect to see overseas assets such as China assets being listed in Hong Kong.''

Hong Kong suffered a setback to plans to develop the market after the government's planned listing of a HK$21 billion trust was challenged in court by a 67-year-old public housing tenant.

To entice new listings, the SAR this month relaxed its rules to allow property trusts to invest in real estate overseas and borrow as much as 45 percent of the value of the property they hold.

``We have carefully studied the guidelines and we find it very encouraging, and there are good opportunities to list our REITs in Hong Kong,'' Chiu said, declining to give details of the trust. The guidelines ``will help grow the REIT market in Hong Kong.''

Hong Kong's publicly traded real estate companies have about US$100 billion of assets, according to the Securities and Futures Commission.

Australia's market for real estate trusts, developed more than two decades ago, is valued at about US$50 billion, according to Henderson Global. Japan's REIT market is valued at about US$19 billion and Singapore has US$6 billion of property trusts, the fund management company estimates.

Singapore is considering allowing trusts to borrow the equivalent of as much as 60 percent of the value of the property they hold, from 35 percent, to lure property funds.

Of the four Asia-Pacific markets with property trusts, Hong Kong is the only one that doesn't offer tax breaks for REITs, according to UBS.

``The major constraint of the Hong Kong market is the lack of tax transparency,'' said Michael Smith, head of Asia real estate at UBS' investment banking unit. Without any tax benefit, ``it's very hard for an owner of real estate to elect to put his real estate in a REIT form and have to comply with all the restrictions in a REIT code.''

Tax breaks for property trusts are a ``red herring,'' Alexa Lam, executive director of the Securities and Futures Commission, said Monday.

Tax breaks wouldn't benefit REITs from China and other markets that may be traded in Hong Kong because they would have to comply with local tax laws, she said.

Cheung Kong, Hong Kong's No2 developer, expects its Suntec REIT in Singapore to expand at a faster pace than its Singapore-listed Fortune REIT, said Chiu, who is chairman of the management companies of both trusts.   - BLOOMBERG   30 June 2005

Reits: What happens if the party ends?

Looking at the activity in the Singapore market for real estate investment trusts, or Reits, who could blame them? The energy now devoted to getting Singapore corporates and family-owned property companies to float Reits is certainly impressive. And to many participants in the industry, Reits also look like a 'sure-win' game. But is it?

Obviously, the arguments in favour of anyone listing a Reit are many. Not least among these is tax savings, as Reits don't have to pay income tax if they distribute most or all of their income to unit holders.

When Reits were introduced in Singapore in 2002, they were pitched for their steady yields from dividend or distribution payouts that offered higher returns than Singapore dollar fixed deposits. However, the bulk of returns for investors in popular Reits like CapitaMall Trust (CMT) and Ascendas Reit (A-Reit) has in fact come from capital appreciation.

So strong has the demand for Reits been that their prices have shot up, with investors now treating them more like high-growth stocks than investments that offer stable returns.

With the steady increase in Reit prices, their distribution yields have accordingly fallen. In industry-speak, the yields have become compressed.

For instance, CMT, when it was floated in July 2002, had an initial annualised distribution yield of 7.06 per cent based on its 96-cent IPO price.

A-Reit, when it was floated a few months later, had an 8 per cent yield based on its 88-cent IPO price.

Today, CMT is trading on a distribution yield of about 4.5 per cent based on its closing price yesterday of $2.20. A-Reit is trading at a 4.9 per cent yield, based on its $2.01 closing price yesterday.   CapitaCommercial Trust, which was created last year out of a demerger from parent CapitaLand, is trading at a 4.5 per cent yield.

Market watchers now say there isn't much room left for yield compression and overseas institutions are unlikely to invest in the Singapore market if yields drop below 4.2 per cent. The problem is that with rising interest rates, fund managers are likely to demand higher distribution returns from Reits.

With less scope for further yield compression, there will be limited upside for prices going forward for a given distribution payout by a Reit.

Put simply, the returns from investing in Reits will increasingly have to be driven by higher distributions. And this can only come from improving the tenancy mix, increasing rentals, and from asset enhancements.

It is therefore not enough for Reit managers, when they buy assets, to highlight just the upfront yield for the property or to say that the yield is higher than that for the Reit's existing portfolio. They have to ensure that the properties have potential for future growth.

A related danger is that as Reits proliferate and compete in the market for assets, they may have to chase up the prices of properties to a point which leaves the manager with very little room for manoeuvre when interest rates rise. When that happens, the Reit's distributable income could fall, or would fail to meet the Reit manager's forecast. Either way, the Reit's price will be hammered on the stock market.

Industry watchers warn that these trends could increasingly force Reit managers to do some form of financial engineering to prop up the distribution payout. One way they could do this is to provide income guarantees or support for the assets owned by the Reit. Yet another method is to delay the distribution of part of the units, as a smaller number of units in issue will boost distribution per unit.

Such strategies could be very tempting to Reit managers when they are faced with sponsors who demand a high price for the assets that they are selling to the Reit. Regulators, and banks, too, in their zeal to attract overseas and local groups to list their Reits here, should be careful that they are not unwittingly rolling out the red carpet for such aggressive players. Their entry can't be healthy for the market.

Confidence is a valuable thing. If foreign institutional investors start getting more cautious, the party may very well end. And Singapore Reit prices, which have so far seen only uptrend, could come down. Signs of this can already be seen. Compared with the steep capital appreciation enjoyed by initial Reit investors at IPOs, subsequent cash-raising exercises have been generating less impressive gains. For investors, circumspection won't go amiss. - by Kalpana Rashiwala    SINGAPORE BUSINESS TIMES    6 May 2005

ARA aims to be Reit giant in Asia
Li Ka-shing's ARA Asset Management wants to be one of the largest real estate investment trust (Reit) managers in Asia. To achieve that, it is eyeing at least one trust listing a year over the next four to five years, including the first cross-border China Reit in 2005. 'We want to be one of the largest Reit managers in Asia, ex Australia,' ARA CEO John Lim told BT in a recent interview. 'Our experience in Fortune Reit and, more importantly, our association with Cheung Kong and the recent developments in China will help. We want to do at least one Reit a year for the next 4-5 years.' Last year, ARA did Fortune Reit, this year the mega Suntec City Reit. In the first half of next year, a China retail mall trust is being planned.

Mr Lim was silent on the impending Suntec City Reit but was keen to talk about the China retail trust. 'This will be the first cross-border China Reit. We are looking at a very good size IPO of about US$200-250 million with a yield of 8-10 per cent,' he said. ARA is now doing its due diligence on four malls in Beijing, Guangzhou and Tianjin with a total floor area of up to 8.5 million sq ft. The due diligence will be completed by January and not all malls may be injected into the Reit, Mr Lim said. The malls belong to a consortium of three developers. Credit Suisse First Boston (CSFB) will be the lead manager for the IPO.

CSFB's vice-president David Moritz said: 'The Chinese parties were very keen to work with ARA because it is one of the largest and fastest-growing Reit managers in Asia, has experience in cross-border structures and because of the speed at which they work. There is increased activity in Reits in Singapore, Malaysia and China. In Singapore, it is because of the enhanced tax transparency, in Malaysia, the revised Reit regulations are now more favourable, while the tightening of lending by banks in China will create a need for developers to figure ways to monetise their property assets.'

Mr Li's Cheung Kong, Hong Kong's real estate giant, is not linked to any of the three developers, ARA's Mr Lim said. ARA is a joint venture between Cheung Kong and Mr Lim. The China retail Reit is likely to be listed in Singapore or Hong Kong. 'We like Singapore, the experience of Fortune being listed here, and the full support of the authorities,' he said. 'Hong Kong we will study and see how it reacts to Reits as a product.' Singapore poses one challenge, however. Listings in renminbi are not allowed and the China Reit will most likely be listed in US dollar, which entails a currency risk.

Mr Lim said the China Reits will focus on acquiring malls in Beijing, Guangzhou, Tianjin, Shanghai and Chongqing as its growth strategy and ARA plans to have assets under management of US$1-2 billion in 3-4 years. 'China's a huge market, especially the key cities. The Chinese are also getting very affluent and retail trades are doing well,' Mr Lim said. 'The China government's tightening of credit has also helped us, as developers are now trying to divest their properties to get cash. This has offered us tremendous opportunities to talk to developers for good quality malls. It's also a good chance for investors to participate in the opaque Chinese market because the Reit is a very transparent instrument.' ARA wants to manage listed property trusts in the region in particular Singapore, Hong Kong and China. 'Malaysia, sure, we're keen but so far no one has approached us and we've our plates full to go after them just yet,' Mr Lim said. 'You need a brave person there to do the first Reit before the rest will emerge just like what we did with Fortune. You can expect more cross-border Reits.

'Hong Kong would be the next Reit after the China retail Reit when the market there matures but we don't have a time frame. It could be 2005 or 2006,' Mr Lim said. 'But who knows we may set up an industrial Reit in China first, which has an attractive property yield of 12-14 per cent.'

To spearhead ARA's Reit ambitions, Mr Lim has brought in Quek Kar Tung, former chief financial officer of Raffles Holdings and former deputy CEO of the Singapore International Monetary Exchange. 'I was trying to market a pan-Asian Reit in The Netherlands to ARA and ended up joining ARA instead, when I realised that it was at the forefront of the Reit scene,' Mr Quek said.

Apart from managing Reits, ARA also runs private funds, including the Al Islamic Far Eastern Real Estate Fund which claims it's the first such fund set up in Asia. The target for private funds has been set at US$1 billion within 3 years. Mr Lim has said he plans to list ARA in three years and to manage assets of $4-5 billion.

ARA is working with an American real estate fund in China to provide mezzanine financing to developers there. It hopes to raise US$100-150 million in Q1, 2005.

ARA's listed trust plans will rival those of property giant CapitaLand which has two Reits so far - CapitaMall Trust and CapitaCommercial Trust. CapitaLand is also the trust manager for Hong Kong's Housing Authority Reit - the world's largest initial public offering for a Reit raising HK$20 billion.  - by Andrea Tan     SINGAPORE BUSINESS TIMES    2 Nov 2004

• Li Ka-Shing, HK tycoons mull REIT for Suntec City

Reits account for half of Q2 investment sales

(SINGAPORE) Real Estate Investment Trusts (Reits) have bought $1.03 billion worth of properties so far this quarter, accounting for nearly half of the $2.14 billion investment sale deals struck during the period, according to latest figures by Jones Lang LaSalle.

The Q2 tally is more than double the previous quarter's figure and brings total investment property sales in the first half to $2.99 billion. This is 68 per cent of the $4.37 billion total for the whole of last year.

The JLL figures are corroborated by another property consultancy firm, CB Richard Ellis, which also issued a buoyant investment sales report yesterday.

Its research put the second quarter figure at $2.2 billion, and the total since the start of the year at $3.2 billion.

'With such strong performance, the total investment sales in 2004 are likely to surpass last year's $4.16 billion,' said the firm's executive director Soon Su Lin.

Based on the company's data, this would be the first rebound since 1999.

The momentum for the second half will come from institutional investors and Reits continuing to scout for stable income-producing industrial properties, malls and perhaps office buildings, along with developers continuing to replenish their residential landbanks selectively, Ms Soon added.

Topping the list of property acquisitions by Reits this quarter was CapitaMall Trust's $710 million purchase of Plaza Singapura mall and Ascendas-Reit's $225 million purchase of C&P Logistics Hub.

Mapletree Investments also clinched TIC Tech Centre at Pandan Crescent for $48 million with the aim of injecting it into its proposed logistics Reit.

Investment sales of property are seen as a barometer of mid-to-long-term confidence in the real estate market by developers and big investors.

Such transactions include en bloc deals and sites bought for development but exclude purchases of single units by individuals.

Traditionally, developers had been the big buyers of investment properties but, increasingly, institutions like funds and Reits have also become major players.

This will have some implications. For institutional buyers, especially Reits, the key factor when making acquisitions is yields.

And as Reits make yields and other property information public for the benefit of their unit holders and investors, it increases transparency on market yields. This will ultimately influence how valuers compute property values in general, say market watchers.

JLL Singapore managing director Yu Lai Boon said he expects institutional players to remain major buyers over the next 12 months.

'A more transparent yield-based market will also encourage more international capital flow into the Singapore property market,' he added.

Other big deals this quarter include Marco Polo Developments' $345 million purchase of Scotts Shopping Centre and The Ascott Singapore service residences. The company intends to eventually redevelop the project into a condo and commercial space.

CBRE's figure showed that residential investment sales this quarter amounted to $702 million, giving it a near one-third share of the total pie.

In all, 10 residential land sale deals were recorded in Q2, including four collective sales and an executive condo site in Woodlands sold by the state to Far East Organization.

JLL noted that developers continue to replenish their housing landbanks but are doing so selectively. And like potential home buyers, developers are extremely price sensitive, it added.

The Good Class Bungalow market has also been active this quarter, with 15 deals totalling $144 million, estimated CBRE.    - by Kalpana Rashwala     SINGAPORE BUSINESS TIMES     24 June 2004

Reits move closer to overseas holdings

The Securities and Futures Commission (SFC) will soon amend the rules governing real estate investment trusts (reits), allowing them to hold overseas properties.

The changes, which sources told the South China Morning Post would be introduced next month, are intended to stimulate reit issuance in Hong Kong after an embarrassingly slow start.

Nine months after the SFC introduced rules to allow listed reits - through which funds can invest in a pool of stable-income properties such as car parks, shopping centres and offices - only the Housing Authority has applied to launch a reit including shopping centres and car parks worth at least $20 billion. But the authority is yet to announce a timetable for the launch of its reit.

In November last year, the SFC established a taskforce composed of commission executives and fund managers to review the restriction.

A source close to the commission confirmed its intention to remove the ban but said the motivation was not to increase the attractiveness of reits in Hong Kong.

"What we want to do is match with other markets such as the United States, Singapore and Australia, where reits are allowed to hold overseas properties," the source said, adding that the SFC would also introduce measures to handle two major risk factors associated with overseas properties.

"Valuation methods in overseas property markets' properties are different from Hong Kong's. The SFC will need to establish some benchmarks for investors to access such valuations," he said.

"Also, the land rights to overseas properties is another potential concern.

"The troubles encountered in securing mainland properties owned by Euro-Asia Agricultural Holdings and Shanghai Land Holdings have showed that land rights legislation in China is not clear."

Since the mainland tycoon founders of Hong Kong-listed Euro-Asia and Shanghai Land Holdings - Yang Bin and Chau Ching-ngai, respectively - were arrested in China, company liquidators have been hindered in their effort to secure mainland-based property assets.

The SFC will require that reit managers verify the land rights of mainland properties and disclose any related risks to potential investors.

Many fund managers have blamed the slow uptake on the SFC's initial decision to allow locally listed reits to hold Hong Kong properties only.

"Hong Kong investors can invest directly in the local property market or in Hong Kong-listed property developers," one fund manager said. "I don't think many local investors will be interested in a Hong Kong property reit, but an overseas or China-focused one would be far more attractive."

Another fund manager said the strength of Hong Kong's property and stock markets over recent months had also discouraged reit issuance. "Property prices have gone up substantially since August, making it difficult to value properties to be included in reits," he said.

"Fund houses are also keener to launch equity and guaranteed funds, given current market sentiment. Why launch reits which are new and unproven?"

Sally Wong, executive director of Hong Kong Investment Funds Association, welcomed removal of the restriction.

"The SFC Code on reits basically strikes a good balance," Ms Wong said. "We understand that the SFC has formed a taskforce to look at geographical restrictions on reit investments. This initiative is welcomed by the industry."

But Ms Wong challenged the suggestion that Hong Kong's reit roll-out had been too slow.

"If you look at other jurisdictions within the region, there is usually a time lag between the publication of a reit code on the reits and the first product launch," she said.

"Singapore issued its code in 1999, and its first successful launch did not occur until 2002. Like other new products, it takes time to build up momentum."    - by Enoch Yiu     SOUTH CHINA MORNING POST     March 22, 2004

HK considers allowing Reits to invest in foreign properties

Hong  Kong may relax its rules and allow property trusts to invest in properties abroad as it seeks to compete with Singapore and Tokyo, where more liberal property trust markets are already up and running.

At present, there are no listed real estate investment trusts, or Reits, in Hong Kong, though the city has enacted rules to allow them. A committee will convene next month to consider easing the requirements, said Hong Kong Securities and Futures Commission executive director Alexa Lam.

She declined to say if any companies have applied to sell investment trusts since the rules were issued in August. Expanding the scope of the trust to overseas properties recognises that most Hong Kong property companies have real estate interests offshore, primarily in China and Singapore.

'It all really depends on where the properties are,' said Adrian Ngan, the head of regional property research at BNP Paribas Peregrine Securities Ltd. 'There is greater risk if the properties are in the mainland, whereas Singapore is a more developed market.'

The trusts allow developers to raise cash for new projects and to sell properties they may no longer want. Rental income from the bundled properties is paid as dividends to people who buy shares in the trust. 'We are inviting the task force to come up with benchmarks to assess overseas territories where the Reits can invest,' Ms Lam said in an interview at the Reit World conference in Singapore.

It wouldn't be the first time the rules were eased to attract trusts. The August guidelines were themselves relaxed after Cheung Kong Holdings, controlled by billionaire Li Ka-shing, shunned Hong Kong and turned to Singapore to issue the first property trust by a Hong Kong company.

Cheung Kong was the third property trust sold in Singapore. - Bloomberg    23 Oct 2003

"About 70 percent of the property in the trust will be Hong Kong-based," the company's president, Ning Gaoning, said in an interview in Beijing this month.

The holding company, with investments in property, textiles and beer, is controlled by the Commerce Ministry.

Ning declined to say where shares of the real estate trust might be listed. The company cannot sell shares in Hong Kong because some of its holdings are outside the city. Hong Kong, with no listed property trusts, is revising its rules to compete with Singapore and Tokyo, where publicly traded REIT's have a total market value of more than $5 billion.

"The company will probably choose Singapore because of the lack of geographical limit," said Adrian Ngan, head of regional property research at BNP Paribas Peregrine Securities in Hong Kong.

Cheung Kong (Holdings), Hong Kong's biggest developer by market value, sold shares in its first property trust, Fortune REIT, in Singapore in August. The trust, owned by Li Ka-shing, plans a second listing in Hong Kong after the securities regulator eased some requirements that month. In October, the Hong Kong Securities and Futures Commission said it was considering scrapping the requirement that trusts hold all their property in the city.

Hong Kong properties may be risky for China Resources. Local office rents have not recovered from a 70 percent drop since 1997 as companies vacated space after cutting jobs and as new buildings added to a glut. Retail-space rents, which fell about two-fifths in the last six years, have just started to recover with a revival in tourism. REIT's pay out rental income to shareholders as dividends.

Shares of Fortune REIT, which holds five shopping malls in Hong Kong, have declined while shares of Singapore's two other listed trusts, CapitaMall Trust and Ascendas Real Estate Investment Trust, have gained.

Shares of Fortune REIT, the smallest of the three trusts, have declined 1 percent since listing in August, compared with a 12.5 percent gain in CapitaMall and a 5.7 percent rise in Ascendas in the same period.

China Resources may also find difficulty attracting investors in Hong Kong or elsewhere in Asia amid concerns over its lack of experience in property management, said Ngan, of BNP.    - By Le-min Lim and Jasmine Yap     Bloomberg News   November 26, 2003

China Resources (Mainland funded listed company) is looking into REITS - worth more than 20b (HKD) of real estates, of which 70% is in HK, with the remaining in the Mainland and Thailand.   - APPLE DAILY

Cheung Kong eyes listing for Investment Trust

Cheung Kong (Holdings) plans to submit an application for the listing of its Fortune Real Estate Investment Trust to Hong Kong Exchanges and Clearing this year, according to executive director Justin Chui Kwok-hung. Speaking in Singapore, he said the trust was in talks over acquiring retail properties in Hong Kong and the details were expected to be finalised by March next year.    - SOUTH CHINA MORNING POST   21 Nov 2003

Cheung Kong moves to list Reit on SGX

(SINGAPORE) Li Ka-shing's Cheung Kong Holdings is considering listing a real estate investment trust (Reit) in Singapore that will hold five of its mostly 'local' or suburban malls in Hong Kong, sources have told BT.

Work is said to be progressing quickly on an application to the Singapore authorities to list the Reit here, with Cheung Kong executive director Justin Chiu making ever more frequent trips to Singapore lately.

Sources tell BT the malls likely to be in the proposed trust are mostly in Kowloon and the New Territories and total more than one million square feet of lettable area.

The ebitda - earnings before interest, tax, depreciation and amortisation - yields on the malls are comparable to the 6.8 per cent for CapitaMall Trust (CMT), which was successfully floated in Singapore in July last year.

Distribution yields for Cheung Kong's proposed trust should be able to match CMT's at about 7 per cent, BT understands.

The trust is likely to have a market capitalisation similar to that of CMT, which is now above $800 million.

Spinning the malls into a trust will lighten Cheung Kong's balance sheet - but the group is also keen to be seen as an innovator by trying to be among the first Hong Kong property outfit to float a Reit, an analyst said.

It is understood that Cheung Kong is looking at Singapore rather than Hong Kong for the Reit because the Reit market is relatively more developed here.

DBS Bank, which handled the CMT float and is active in Hong Kong, is understood to be advising Cheung Kong. But DBS spokeswoman Eileen Lau said yesterday: 'We do not comment on market rumours.'

Most of the Cheung Kong malls that could be in the Reit are near housing estates. The biggest, Metropolis Mall, has 360,000 sq ft of shop space and is in south Kowloon, near KCR station, which is connected to mainland China.

The other four malls are in more suburban locations. They are: Smartland (about 130,000 sq ft, in Tai Wo Hau district); Ma On Shan Plaza in New Territories; Juilee Court (specialising in furniture/homeware retailing) and Household mall.

Cheung Kong hopes to ride on the popularity of CMT, which continues to trade above its issue price.

DBS Bank will likely seek cornerstone institutional investors to ensure the success of any float, assuming that the regulatory authorities give the nod to its listing.

Still, market watchers wonder if Cheung Kong's proposed Reit will be as popular with Singapore retail investors as CMT is, given that many may not be familiar with Cheung Kong's shopping centres or the group's strategies in managing its tenants.

In April, when retailers in Hong Kong were hit by the Sars outbreak, Cheung Kong - instead of giving rent rebates like most landlords - devised a scheme for its 500-plus retail tenants to apply for loans from banks to pay their rent. Cheung Kong guarantees the loans.

Tenants can apply for loans of up to 30 per cent of their monthly rent for a three-month period between May and July.

Cheung Kong pays the loan application fees and interest expense for the first six months. The loan has to be repaid in six instalments, starting from the seventh month, with an interest rate at prime lending rate minus one percentage point, the South China Morning Post reported in April.

Cheung Kong also held promotions to draw shoppers to its malls with shopping vouchers.

And it is holding contests for shoppers to pick the best retailers in malls, who will be rewarded with about HK$10,000 (S$2,217) - which can be a month's rent for some tenants.

Because most of the malls are within housing estates and cater to daily necessities of residents, they have been hit relatively less hard by Sars, Cheung Kong's Mr Chiu told Singapore reporters last month. During that interview, Mr Chiu did not give any hint about plans for the group's malls.

Some tenants at Cheung Kong's malls have seen an increase in business, such as Park 'N Shop and Watson's for personal care products, as well as shops selling VCDs and DVDs, since more people have been staying at home, Mr Chiu said last month. - 2003 June 9    SINGAPORE BUSINESS TIMES    

Cheung Kong to launch Fortune Reit today

Li Ka-Shing's Cheung Kong is set to launch Fortune Reit - a real estate investment trust that comes with five Hong Kong malls - in Singapore today.

The intended listing of the Reit marked the start of a new business for Cheung Kong, executive director Justin Chiu said. He was dismissing what the group saw as unfounded fears that Cheung Kong was trying to 'dump' the malls here.

'Cheung Kong has been thinking about Reits for over a year (as a new form of business),' Mr Chiu said, adding that an Australian-based bank had tried to lure the group to list its Reit Down Under.

Singapore won the company over as the Reit market here had done well with CapitaLand's CapitaMall Trust (CMT) and the Ascendas Real Estate Investment Trust.

Singaporeans too were more acquainted with Cheung Kong and its properties compared with the Australians, Mr Chiu said.

The five malls in the HK$3 billion Fortune Reit are Metropolis Mall, Ma On Shan Plaza, The Household Center, Smartland and Jubilee Court Shopping Centre. All, except Metropolis, are located in the New Territories area.

A Hong Kong newspaper had quoted an unnamed analyst in Hong Kong as saying the five malls in Fortune Reit were 'not the company's best'.

Mr Chiu said it was the manager and underwriter DBS Bank and Fortune Reit's manager ARA Asset Management that selected the five properties out of a list of about 10 shopping malls. ARA CEO John Lim said the other malls were either 'not in convenient locations or too big'.

Asked if Cheung Kong was bundling these five malls into a Reit as they could be difficult to sell in the open market, Mr Chiu said: 'No.'

He went on to say: 'We're in the business of building and selling.'

Cheung Kong has given a guaranteed net property income of at least HK$90 million per annum for the Metropolis for three years from the listing.

Asked why the other malls did not have similar guarantees, ARA's Mr Lim said they had 'stable rentals and occupancies' which the group was confident would continue.

Cheung Kong, DBS jump to Reit's defence

Cheung Kong Holdings and underwriter DBS Bank yesterday mounted a strident defence of the former's Fortune Reit - a real estate investment trust that will hold five Hong Kong shopping malls.

At the start of a question and answer session, DBS managing director and joint head of investment banking Eric Ang said he wanted to dispel 'inaccurate' reports about the Reit.

According to him, it is Singapore's 'good fortune' that Cheung Kong chose to list the trust here instead of waiting for Hong Kong's Reit guidelines to be out.

The Fortune Reit has been dogged by controversy.

Reports have said the malls chosen are not Cheung Kong's best, have questioned the group's reasons for listing in Singapore and have said yields should be higher to reflect forex and country risks.

According to Cheung Kong, the five shopping complexes are in 'densely populated' areas of Hong Kong.

Fortune Reit's manager, ARA Asset Management CEO John Lim, said the malls have high customer traffic, although he could not provide figures.

On yields, DBS said the Reit will give a forecast initial annualised distribution yield of 6.7 per cent tax-exempt based on an offer price of HK$4.60.

The post-tax yield of the CapitaMall Trust (CMT) is between 5.4 and 6.8 per cent based on the price of $1.17.

However, based on yesterday's closing price of $1.22, the post-tax yield works out to a lower 5.2 to 6.6 per cent.

DBS said high net worth individuals and institutions typically take up 90 per cent of an offer, so few individual investors will enjoy the 6.8 per cent pre-tax yield from CMT.

Individuals using their CPF funds to buy CMT do not have to pay tax on the investment.

Fortune Reit will issue 473 million units, of which 143.49 million will be offered to investors at between HK$4.60 and HK$4.75 apiece.

'There is sufficient demand to more than cover 30 per cent of the IPO,' said DBS's Mr Ang.

DBS is also the lender of a HK$1.1 billion five year loan for Fortune Reit, which has a gearing of 31 per cent.

Cheung Kong executive director Justin Chiu said no new malls will be injected into Fortune Reit for 12 months, but the Reit will be given priority should Cheung Kong decide to divest any.

Mr Chiu added that Cheung Kong could seek a secondary listing of Fortune Reit in Hong Kong.

Fortune Reit will list here on Aug 12.

Hong Kong's richest man, Li Ka-shing, is eyeing a secondary listing for Fortune Reit in his home town after it snagged a 3.7 times subscription rate, raising HK$906 million (S$204.8 million) or HK$4.75 a share.

Cheung Kong executive director Justin Chiu said he will speak with Hong Kong's stock exchange and Securities Financial Commission (SFC) after the Reit makes its debut on Tuesday. He added that a waiver will be sought from SFC for Cheung Kong's Singapore-registration. Cheung Kong is the flagship company of Mr Li. According to Hong Kong Reit guidelines, only Hong Kong-registered entities are allowed to list.

'The chances of us doing (a secondary listing) are very, very positive,' said Fortune's manager, ARA Asset Management CEO John Lim. 'If there is a secondary listing within six months, there will be no new shares. You can't just issue and collect cash for no reason.'

Fortune Reit is not permitted to buy more malls for six months and from Cheung Kong and related parties for 12 months.

'I have every confidence that we can interest many, many owners to sell their malls to us,' Mr Lim said.

Asked if Cheung Kong's Kingswood Ginza and City One Plaza would be suitable for Fortune Reit, Mr Chiu turned to Mr Lim and said: 'We've no intention of selling it to you yet. The Reit would have to double in size before considering.'

Cheung Kong has sold five suburban retail malls to Fortune Reit.

As the IPO of of 143.5 million units were oversubscribed 3.7 times, lead manager DBS Bank up-sized Fortune's offering by 47.3 million units and over-alloted another 28.6 million units under a greenshoe option. This means 219.4 million shares will be sold to institutional and retail investors. The public offer tranche for 20 million units was 1.7 times subscribed.

Upon listing, Fortune will have in issue 473 million units.

'It's a hard-earned result. We've been working on investors for the past two months,' said Mr Chiu.

After the IPO, the Cheung Kong group will hold about a third of Fortune Reit, and cornerstone investors Capital Research and Management Company, Societe Generale Bank and DBS Bank about a fifth. The rest will be in public hands.  - August 2003 

Cheung Kong, Dubai bank launch Islamic property fund

SINGAPORE -  Hong Kong tycoon Li Ka-shing's Cheung Kong Holdings has joined forces with Dubai Islamic Bank (DIB) to launch an Islamic real estate fund.

The fund of up to US$450 million will invest in real estate in key cities in China and in Singapore, Hong Kong, Kuala Lumpur and Seoul.

The Al Islamic Far Eastern Real Estate Fund will be managed by ARA Asset Management, whose CEO John Lim claims it is the first of its kind set up in Asia.

The fund will invest in residential and commercial projects - but not hotels because 'there's alcohol and other merry-making activities', Mr Lim quipped.

The fund is aimed at Middle Eastern investors. 'The Middle East is a huge market and there are lots of opportunities,' Mr Lim said. 'Many people have stepped in there, especially in the real estate market.'

There are plans for another fund with DIB 'within 12 months'.

The Al Islamic fund had its first closing in July for US$75 million. The second closing for another US$75 million is expected at the end of the year. The fund can leverage up to three times.

The fund will invest based on Sharia law. This requires that profits be shared, prohibits interest and bans investment in industries related to alcohol, gambling, weapons or sexual exploitation.

Cheung Kong will take a 30 per cent stake in the fund. DIB and other investors will take the remaining 70 per cent.

Interest in Islamic financial products is growing. Minister for Trade and Industry Lim Hng Kiang, who was then Second Minister for Finance, said in July that the Monetary Authority of Singapore was reviewing rules to facilitate Islamic financial products.

International Mezzanine Fund Management, an associate company of Hong Kong's Sun Hung Kai Financial Group, has launched a fund that will finance property investments and developments in Singapore, Hong Kong and Australia.

DIB's executive vice-president of investment banking, Aref Kooheji, said: 'Asia is the most exciting market currently, given the emergence of China as the growth engine. Islamic funds have not been active in Asian real estate, and we believe this fund provides the basis for us to expand our investments into this region.'

ARA's Mr Lim is excited. The Al Islamic fund will help him achieve almost half of his target of US$1 billion in private funds over the next two or three years. Another fund, aimed at US institutional investors, is expected to close at the end of this year, raising about US$150-200 million.

ARA is also the manager of Singapore's only offshore property trust, Cheung Kong's Fortune Reit. 'My dream is to have at least two Reits by the end of next year,' Mr Lim said.

Is a property trust involving Suntec City next?

Mr Lim is keeping mum. 'ARA was set up in 2002 and we've gone very far,' he said. 'We set up the Fortune Reit - the first cross-border Reit - and now the first Islamic real estate fund. I think we've done well.'

Mr Lim admits the Li Ka-shing and Cheung Kong names have helped him 'very, very much' in the fund management business. 'Without Cheung Kong's support and capital we would not be able to grow so fast,' he said. 'That is the biggest success factor of ARA. The boss has been very supportive.'

To help grow the private funds business, Mr Lim has roped in former GRA colleague David Teng, who spent more than five years in Beijing.

Mr Lim, who was formerly with GRA Singapore and DBS Land, says his mission 'is to list ARA in three years and to manage assets of $4-5 billion'. ARA manages about $1.6 billion in real estate.

Asked if a listing is Cheung Kong's way of exiting ARA, Mr Lim said: 'No. That's not the intention. We always take one step at a time.'    - by Andrea Tan      SINGAPORE BUSINESS TIMES     8 Sept 2004

• Singapore Reits
• Hong Kong Reits

Copyright ©  2007
By opening this page you accept our Privacy and Terms & Conditions