With more overseas players seeking to list here and strong backing from the government to strengthen governance and the operation structure of the market, Singapore is fast developing into a regional Reit hub, writes JEREMY LAKE
SINGAPORE has established itself as one of the most developed markets in Asia for real estate investment trusts (Reits), supported by new listings and active acquisitions by existing Reits.
Reits have been the bright spot in the Singapore capital market and a major driver in the growth of market capitalisation on the Singapore Exchange (SGX). Currently, there are 17 Singapore Reits (S-Reits) listed on the SGX with a total market capitalisation of more than $25 billion as at end-August.
S-Reits have come a long way since the first retail Reit, CapitaMall Trust (CMT), was listed in 2002. The subsequent raising of the gearing cap from 25 per cent to 35 per cent contributed to the burgeoning market.
The investment trust framework allows an attractive level of tax-efficiency. S-Reits are granted tax transparency status, waiver of stamp duty and exemption from capital gains tax. Individual investors are given tax exemptions on Reit payouts. For these reasons, Reits have spurred considerable interest among investors and are now widely accepted as a high-quality investment option.
S-Reits themselves have been growing through acquistions. A total of $6.14 billion worth of properties was acquired by S-Reits in 2006, representing 20 per cent of the year's total investment sales. This was also 39 per cent higher than the $4.41 billion of total assets acquired by S-Reits in 2005. So far this year, S-Reits have acquired properties of more than $3.7 billion. (See Table 1)
Commercial Reits contributed the bulk of investment sales made by S-Reits in 2006 by acquiring a total of $3.84 billion worth of assets or 63 per cent of the total acquisition costs ($6.14 billion). The most significant transaction made by commercial Reits last year was the joint acquisition of Raffles City by CapitaCommercial Trust and CapitaMall Trust for a total of $2.17 billion, representing the highest price paid for any investment transaction in 2006.
So far this year, commercial Reits continue to account for the largest proportion of investment sales made by S-Reits, contributing $2.16 billion in transacted value or 58 per cent of the $3.71 billion in total investment sales. It was announced recently that both K-Reit and Suntec Reit have each acquired a one-third stake in One Raffles Quay for $1.88 billion. In addition, CapitaLand divested its interest in Wilkie Edge, a commercial-cum-serviced residence development, to CapitaCommerical Trust for $182.7 million.
The potential for further growth in the S-Reit market is substantial. The development of the S-Reit sector is largely supported by the proactive initiatives of the Monetary Authority of Singapore (MAS) to enhance their competitiveness in the region. In a move aimed at making Singapore a major Reit hub, the MAS released a consultation paper on proposed amendments to the Reit regulations in March. Key proposals include improving disclosure on short-term yield enhancing arrangements and their impact, allowing Reits to pay dividends in excess of current income, removing the aggregation rule for transactions with the same interested party and prohibiting discounts to institutional investors during IPOs.
An increasing variety of asset classes is expected to be listed as Reit vehicles in the medium term, beyond office buildings, shopping malls and industrial properties. Following the launch of the first healthcare S-Reit, First Reit, Lippo Group announced its plans to list two more S-Reits in the near term, 12 of which are shopping malls located in Jarkata with a total lettable area of 500,000 sq ft. The initial portfolio of the group's third Reit will comprise commercial properties outside Indonesia, such as office buildings in Singapore, China and Hong Kong, worth about $2 billion in total.
JTC, the largest industrial developer in Singapore, announced its plan to list an industrial S-Reit in the near term. Its initial portfolio, estimated at $1.4 billion to $1.6 billion, will include flatted factories, ramp-up and stack-up factories, three multi-tenanted business park buildings and a warehouse.
Pramerica Asia was reported to be looking to divest its retail property portfolio via a Reit. Shopping malls to be injected into its $1-billion initial portfolio include Century Square, Hougang Plaza, Tiong Bahru Plaza and White Sands. Mapletree Investments was also reported to be planning to launch a commercial trust with VivoCity as the anchor asset, valued at an estimated $1.6 billion to $2 billion. Other properties likely to be included in this Reit are St James Power Station, HarbourFront Centre, a 60 per cent stake in HarbourFront Towers One & Two, a 30 per cent stake in Keppel Bay Tower, PSA Building and PSA Vista. The total value of the entire portfolio, including VivoCity, is estimated to be $3 billion.
While the Singapore government continues to strengthen governance and the operation structure of S-Reits, it is also striving to turn Singapore into a regional Reit hub, which will give Reits direct and ready access to capital.
More incentives are being provided for local and foreign companies to establish cross-border Reits, to hold overseas properties on other bourses as a strategy to expand their portfolios. Geographically, more than $20 billion or 81 per cent of the total asset portfolio held by S-Reits are local properties and the remaining 19 per cent or $4.77 billion worth of portfolio are overseas assets. (See Table 2)
The outlook for the S-Reit market remains positive as more Reit issuers divest their overseas assets into Reits here. More sophisticated Reit products will be developed over time. An Indian-based developer, Embassy Group, was also reported to be looking at launching a Reit in Singapore with a portfolio comprising some of the group's business parks in India.
Indonesian property developer, Gapura Prima Group, will be teaming up with Malaysian developer (Amanah Raya Bhd) to launch a Reit on the SGX in the near term. Its initial portfolio will comprise five malls in Indonesia and another two in Malaysia worth $400 million in total.
Tokyo-based Asia Pacific Land Group plans to list a Reit in Singapore, with an initial portfolio comprising some of its retail and office properties in Japan worth $2.3 billion in total. Another Tokyo-based real estate fund manager, Re-plus, plans to launch an S-Reit in early 2008, with a portfolio comprising two China office buildings worth at least US$400 million.
Saudi Arabia-based property developer, Tanmiyat Investment Group, was reported to be looking to launch an S-Reit with an initial portfolio of developments in Saudi Arabia, the United Arab of Emirates, Turkey, Jordan and Sudan, worth a total of $13.6 billion.
As Reit portfolios become more diversified, more so than in the mature US and Australian Reit markets, Reit managers in Singapore are challenged to find ways to increase yields of the various asset types to make it more attractive for investors.
Certainly, Reits have added a dimension to the real estate investment and capital markets that appeals to both investors and property companies. The expected growth in Reits would have a positive impact on the broader market as it adds depth to the market and gives investors here wider investment choices.
The writer is executive director, investment properties, CB Richard Ellis
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