All May Gain If Goodman Bags JTC Reit

Source : The Business Times, January 07, 2008

AUSTRALIA'S Goodman group is reportedly expected to clinch the job of being the manager of a proposed real estate investment trust that will hold about S$1.6 billion of industrial properties to be divested by JTC Corp. No official announcements have been made so far.

Market watchers expect Goodman to exit an existing business in Singapore - its 40 per cent stake in Ascendas-MGM Funds Management, the manager of Ascendas Real Estate Investment Trust (A-Reit). JTC's subsidiary Ascendas holds the remaining 60 per cent.

Some industry players suggest that giving up its stake in the A-Reit manager was probably a condition JTC laid down for Goodman if it wants to manage the new Reit.

That makes sense. For one, it removes conflict of interest. Goodman can't be having an interest in two Singapore industrial Reit managers who may compete for the same assets and tenants.

For Goodman, instead of having to divide its energies between managing two Reits in Singapore, it may be better to focus on just one Reit.

Another compelling reason for it to choose to manage JTC's impending Reit and give up its stake in A-Reit's manager is that Goodman can have full control of the JTC Reit manager, unlike A-Reit, whose Reit management company it controls jointly with JTC subsidiary Ascendas.

JTC may still keep a stake in the impending Reit - perhaps to assuage concerns of some of its tenants that the statutory board's properties divestment will be accompanied by an increase in their occupation costs. But Goodman will clearly be in the driver's seat for this new Reit.

Market watchers also expect Goodman to be a sponsor for the new trust, holding a stake of at least 20-30 per cent, in addition to having full ownership of the Reit manager.

That gives Goodman leeway to expand the new Reit as it deems best. The new Reit can ride on the Goodman group's substantial clout - the group owns, develops and manages industrial and business space globally and has total assets of A$37 billion (S$46.5 billion) with over 700 properties under management. In Asia too, Goodman has a substantial presence in China, Hong Kong and Japan.

Goodman's new Singapore Reit will be able to mine Goodman's huge customer base for tenants for its existing and future properties as they expand across Asia. Goodman could also open the door for the Reit to acquire assets in the region.

These are some of the reasons why it makes sense for Goodman to choose sole control of the new Reit manager over continuing joint control of the A-Reit manager.

Its partner in the A-Reit manager, Ascendas, too may feel freer to grow the trust after Goodman leaves.

Since its listing on the Singapore Exchange in November 2002, A-Reit has focused exclusively on Singapore. No doubt its asset size has grown impressively - from an initial portfolio of eight properties worth S$607 million at the time of listing to 78 properties totalling S$3.3 billion as at Sept 30, 2007. But eventually, relying exclusively on the home market limits A-Reit's expansion prospects.

Industry insiders say that A-Reit has never expanded overseas because of an understanding between Ascendas and Macquarie-Goodman (Macquarie and Goodman parted ways about 18 months ago although a name change to just 'Goodman' was effected only last year) that A-Reit will not venture overseas, where both Goodman and, at the time, Macquarie, have considerable interests. In a nutshell, it was to avoid conflict among the three parties overseas. Ascendas may have agreed to such conditions because back then, it needed to ride on Macquarie-Goodman's brand name in industrial property funds management. Don't forget, back in late 2002 when A-Reit was floated, Reits were still relatively novel here.

But five years on, Ascendas has gained considerable property fund management expertise, not only managing A-Reit but setting up property funds holding Indian properties, including the Ascendas India Trust (a-i Trust) which was last year floated as Singapore's first listed Indian property trust.

Overseas markets

Ascendas also has significant presence in China and South Korea and is fast expanding in Vietnam. Ascendas may well decide to float separate Reits holding assets in various respective overseas markets. Or it may decide to park assets in some overseas markets in A-Reit. This will be an internal strategy Ascendas will have to sort out. But at least A-Reit will no longer be fettered from overseas expansion.

So if Goodman and Ascendas decide to part ways in the A-Reit manager, that may be a good thing, for both parties, as well as for A-Reit itself.

In July last year, JTC said it had shortlisted seven candidates to manage the Reit that will hold assets to be divested by the stat board. JTC is understood to have narrowed down on the final few candidates based partly on their track records and of these, Goodman probably offered the highest value for the assets that JTC will sell to the Reit.

If JTC does eventually pick Goodman to manage the new Reit, it should help smoothen ongoing negotiations on the price Goodman will receive for selling its 40 per cent stake in A-Reit's manager.