Source : The Business Times, January 7, 2008
WALL STREET INSIGHT
Most economists expect US economy to narrowly avoid recession this year
NO MATTER whether stocks in the US equity market are able to thrive this year or even achieve the slim single-digit gains that most of the Wall Street market strategists The Business Times polled have set for their end of year targets, this year will be amongst the most challenging market environments facing Wall Street in many years.
'2008 will certainly not be a year short of major storm clouds,' said Jim Awad, chairman of WP Stewart, who is forecasting gains of 4 to 6 per cent for blue chip stocks and the broader S&P 500. 'It will be a volatile and difficult year, with the positive pull of export demand from higher growth overseas battling the drag of a domestic slowdown and financial sector troubles.'
The US market's start to the year reflected the daunting challenge, as the Dow Jones Industrial Average closed 2008's first day of trading with a 220.86-point loss, or 1.67 per cent to 13,043.96, the worst point decline for the Dow at the start of any trading year.
'That's not the way you want to start off a new year, it's certainly bearish as omens go,' said Ryan & Beck senior market strategist Joseph Battipaglia. 'But still, it's only the first day of the year.'
Indeed, and with hundreds more trading sessions to go in 2008, Wall Street analysts expect the good to outweigh the bad this year, if only by the slimmest of margins.
First, the good news. Most stock market strategists expect the US equities markets to move up during the 12 months, registering modest gains. Large capitalisation, multinational companies, especially makers of information technology equipment and software, should lead the way. The US economy should narrowly avoid a recession, beginning to show signs of recovery by the end of the year, most Wall Street economists say.
Economists like Merrill Lynch's David Rosenberg believe the US Federal Reserve will be active in cutting short term interest rates this year, bringing solace to investors focused on the economic slowdown. Mr Rosenberg thinks that data like Wednesday's weak manufacturing report could push the rate-setting committee to order a cut of fifty basis points at its January meeting. 'The voting members are becoming more sanguine about inflation and more concerned about tightening credit conditions and deterioration in the financial market, as noted in the minutes of their last meeting,' he said.
The bad news: That's the best-case scenario for what is expected to be a tumultuous 2008 for stock investors.
Despite the US housing market's year-long collapse in 2007 and over US$40 billion in write-offs by banks looking to clear their books of sub-prime loans and investments, the coming year presents the threat of more of the same. A severely wounded housing market, coupled with loan-wary credit markets, could act together to pull the US economy into a prolonged recession, with several quarters of falling profits for US corporations in the wider economy, not just financial businesses.
'We certainly shouldn't expect to be rescued by corporate profits this year,' said Charles Crane, investment strategist at Scotsman Capital. 'But companies could also end up faring more solidly than many investors seem to be expecting, and that could provide a boost mid-year,' he said.
FedEx, a leading indicator for the US economy, is a good example. The logistics company was one of the first to top out in 1999 and one of the first to bottom out in 2000.
In its last quarterly report FedEx offered downward guidance for the current quarter, which ends next month. But it sounded a more confident note for its first quarter of 2008, which ends in May, indicating it sees a pick-up in business as early as the spring.
Mr Battipaglia believes that, short of an outright melt-down and panic, 'all of the bad stuff is out there already. It could get worse, but it's already very high and printed in bold on investors' radar screens,' positioning stocks for a solid bounce-back later in the year.
Although the increased chance of recession, inflation and even stagflation cannot be dismissed, said Citigroup chief investment strategist Tobias Levkovich, 'should recession be averted, as we currently expect, some of the most beaten-up groups like diversified financials and retailers would most likely act as coiled springs and lead markets higher this year.'
He claimed that market fundamentals 'still argue for double-digit stock price appreciation after a disappointing 2007. Valuation, implied earnings expectations and select sentiment approaches all support respectable upside potential.' He set year-end market targets at 1,675 for the S&P 500 and 15,100 for the Dow.
Mr Crane is not as bullish as Mr. Levkovich, forecasting single digit gains for the major indexes, but he agrees that many stocks are venturing into oversold territory. 'There will be plenty of opportunities to make better returns in individual stocks,' he said.
Monday, January 7, 2008
What Price ‘Posh’ Public Housing? Homing In On The Issue
Source : The Straits Times, Jan 7, 2008
The latest public housing comes at a premium, but YouthInk writers wonder if the cost is worth it.
Going beyond the basics
THE humble, historical background of the Housing and Development Board (HDB) differs significantly from the new and niche flats of the Design, Build and Sell Scheme (DBSS).
Some would argue that the latter goes against the original principles of public housing - that is, they must be affordable to all.
Yet these ‘original principles’ must be understood in the context in which they were formulated. A crisis of housing shortages in the 1960s left the Government with little choice.
Since then, public housing has evolved with new schemes and upgrading programmes which go beyond the bare basics. This is an inevitable reflection of a small nation’s social and economic progress. The DBSS flats are no exception.
The historical role of HDB - to provide cheap and simple housing - must be adequately met at all times. But beyond that, let market forces decide.
Koo Zhi Xuan, 21, is a first-year law student at the National University of Singapore (NUS)
It’s the people, not the space
FOR the average working individual in Singapore, a palatial bungalow is hardly a realistic investment.
The majority of our population lives in subsidised housing - arrangements which come with an extensive list of rules. The best consolation is that these restrictions at least come with an increasing structural attractiveness of HDB flats.
But it is a shame when practical functions of a residential community are compromised for new designs. Minimalist rain shelters do little to shield residents from torrential downpours native to Singapore.
Roof-top gardens intended for additional aesthetic value become every resident’s nightmare when perpetual neglect turns them into potential mosquito-breeding grounds.
The price premium undoubtedly comes with a degree of exclusivity. But it is possible to attain unique housing accommodation sans the hefty price tag for superficial exteriors.
In many other cities such as Hong Kong or New York, space is equally scarce, and clustered living is a must. But living in a shoebox is not impossible with a few great interior design ideas.
In the end, it’s the people you live with that make a house your home.
Alicia Ng, 23, is a final-year accountancy student at the Singapore Management University
Do in-depth demand studies
LATELY, the HDB demand-supply imbalance has frustrated some families, and young couples attempting to secure their desired flats.
But there is no short-term solution. The HDB needs to avoid a supply glut - the property plateau in 1997 saw long queues vanish after thousands of flats were built.
Still, there is room for improvement.
I live in Jurong West and my block, six years old, is only half-filled.
Potential buyers, apparently, are deterred by the area’s proximity to industrial estates and lack of vibrancy. Judging by the number of flats currently vacant, these conclusions were not derived prior to construction.
Conducting in-depth studies and surveys on demand patterns now could help prevent such a supply-demand mismatch in future.
Berton Lim, 20, has a place to read business administration at NUS
An attractive option
IN AUSTRALIA, the silent stigma attached to public subsidised housing is very apparent. No one will live in public housing if he can help it.
In contrast, Singapore’s public housing is much sought after. High-quality apartments at affordable rates allow most Singaporeans to be home owners.
Given the high aspirations of young Singaporeans, the HDB’s varied housing choices have become a hit with the younger generation.
The board is still relevant, long after its initial mandate to produce basic units which everyone can afford.
In fact, buyers do not get factory churnouts, because the DBSS allows Singaporeans to personalise their apartments.
And it is this pricier alternative which makes HDB flats an attractive option to
a wider spectrum of discerning home buyers.
Ultimately, being able to own an apartment beats renting one. Yet true to Singaporean culture, very rarely does something come ‘cheap and good’.
Tabitha Mok, 21, is a fourth-year medical student at the University of Western Australia.
The latest public housing comes at a premium, but YouthInk writers wonder if the cost is worth it.
Going beyond the basics
THE humble, historical background of the Housing and Development Board (HDB) differs significantly from the new and niche flats of the Design, Build and Sell Scheme (DBSS).
Some would argue that the latter goes against the original principles of public housing - that is, they must be affordable to all.
Yet these ‘original principles’ must be understood in the context in which they were formulated. A crisis of housing shortages in the 1960s left the Government with little choice.
Since then, public housing has evolved with new schemes and upgrading programmes which go beyond the bare basics. This is an inevitable reflection of a small nation’s social and economic progress. The DBSS flats are no exception.
The historical role of HDB - to provide cheap and simple housing - must be adequately met at all times. But beyond that, let market forces decide.
Koo Zhi Xuan, 21, is a first-year law student at the National University of Singapore (NUS)
It’s the people, not the space
FOR the average working individual in Singapore, a palatial bungalow is hardly a realistic investment.
The majority of our population lives in subsidised housing - arrangements which come with an extensive list of rules. The best consolation is that these restrictions at least come with an increasing structural attractiveness of HDB flats.
But it is a shame when practical functions of a residential community are compromised for new designs. Minimalist rain shelters do little to shield residents from torrential downpours native to Singapore.
Roof-top gardens intended for additional aesthetic value become every resident’s nightmare when perpetual neglect turns them into potential mosquito-breeding grounds.
The price premium undoubtedly comes with a degree of exclusivity. But it is possible to attain unique housing accommodation sans the hefty price tag for superficial exteriors.
In many other cities such as Hong Kong or New York, space is equally scarce, and clustered living is a must. But living in a shoebox is not impossible with a few great interior design ideas.
In the end, it’s the people you live with that make a house your home.
Alicia Ng, 23, is a final-year accountancy student at the Singapore Management University
Do in-depth demand studies
LATELY, the HDB demand-supply imbalance has frustrated some families, and young couples attempting to secure their desired flats.
But there is no short-term solution. The HDB needs to avoid a supply glut - the property plateau in 1997 saw long queues vanish after thousands of flats were built.
Still, there is room for improvement.
I live in Jurong West and my block, six years old, is only half-filled.
Potential buyers, apparently, are deterred by the area’s proximity to industrial estates and lack of vibrancy. Judging by the number of flats currently vacant, these conclusions were not derived prior to construction.
Conducting in-depth studies and surveys on demand patterns now could help prevent such a supply-demand mismatch in future.
Berton Lim, 20, has a place to read business administration at NUS
An attractive option
IN AUSTRALIA, the silent stigma attached to public subsidised housing is very apparent. No one will live in public housing if he can help it.
In contrast, Singapore’s public housing is much sought after. High-quality apartments at affordable rates allow most Singaporeans to be home owners.
Given the high aspirations of young Singaporeans, the HDB’s varied housing choices have become a hit with the younger generation.
The board is still relevant, long after its initial mandate to produce basic units which everyone can afford.
In fact, buyers do not get factory churnouts, because the DBSS allows Singaporeans to personalise their apartments.
And it is this pricier alternative which makes HDB flats an attractive option to
a wider spectrum of discerning home buyers.
Ultimately, being able to own an apartment beats renting one. Yet true to Singaporean culture, very rarely does something come ‘cheap and good’.
Tabitha Mok, 21, is a fourth-year medical student at the University of Western Australia.
$5.3b Boost For Marina Bay Sands
Source : TODAY, Monday, January 7, 2008
Weaker US dollar pushing up cost for Las Vegas Sands
LAS Vegas Sands (LVS) said that despite the constricted credit market, it has secured more than US$3.7 billion ($5.3 billion) in loans to build Marina Bay Sands, its proposed integrated resort in Singapore.
The financing package for the complex also includes a capital contribution of about US$558 million in equity from LVS, according to a United States Securities and Exchange Commission (SEC) document filed last Friday.
Mr William Weidner, president and chief operating officer of LVS, said the company would likely not have been able to convince lenders if the project had been outside of Asia.
“We are lucky to have such a strong Singaporean economy as a backdrop,” he said. Mr Weidner said the cost of the Singapore project has increased slightly because of the weakened US dollar and the rise of building and material costs in Singapore’s booming economy. Although he declined to discuss cost details, according to last Friday’s SEC figures, the cost of the project could grow to as much as US$4.6 billion, up from the US$3.6 billion that was first announced.
The Singapore project includes plans for 2,500 hotel rooms; 1.2 million square feet of flexible meeting, convention and exhibition space; 1 million square feet of retail space; and three large entertainment venues.
The Marina Bay Sands is scheduled to open next year. The project represents Sands’ significant push into the Asian market. Last year, the Las Vegas-based company — led by Mr Sheldon Adelson — opened the Venetian Macao, a massive casino hotel in Macau. LVS plans to retire the debt five to eight years after the facility opens, Mr Weidner said. — THE WALL STREET JOURNAL
Weaker US dollar pushing up cost for Las Vegas Sands
LAS Vegas Sands (LVS) said that despite the constricted credit market, it has secured more than US$3.7 billion ($5.3 billion) in loans to build Marina Bay Sands, its proposed integrated resort in Singapore.
The financing package for the complex also includes a capital contribution of about US$558 million in equity from LVS, according to a United States Securities and Exchange Commission (SEC) document filed last Friday.
Mr William Weidner, president and chief operating officer of LVS, said the company would likely not have been able to convince lenders if the project had been outside of Asia.
“We are lucky to have such a strong Singaporean economy as a backdrop,” he said. Mr Weidner said the cost of the Singapore project has increased slightly because of the weakened US dollar and the rise of building and material costs in Singapore’s booming economy. Although he declined to discuss cost details, according to last Friday’s SEC figures, the cost of the project could grow to as much as US$4.6 billion, up from the US$3.6 billion that was first announced.
The Singapore project includes plans for 2,500 hotel rooms; 1.2 million square feet of flexible meeting, convention and exhibition space; 1 million square feet of retail space; and three large entertainment venues.
The Marina Bay Sands is scheduled to open next year. The project represents Sands’ significant push into the Asian market. Last year, the Las Vegas-based company — led by Mr Sheldon Adelson — opened the Venetian Macao, a massive casino hotel in Macau. LVS plans to retire the debt five to eight years after the facility opens, Mr Weidner said. — THE WALL STREET JOURNAL
Uphill Trek Ahead As Building Costs Keep Rising
Source : The Business Times, January 07, 2008
Study suggests strain on resources, no let-up this year.
The construction boom here is stretching resources, as costs of building materials look set to keep climbing through 2008.
Already, building costs are almost on par with Hong Kong, double that of Beijing, and just 30 per cent below New York.
And according to a report by construction cost consultancy Rider Levett Bucknall (RLB), Singapore prices jumped 12 percentage points to 15 per cent in 2007.
RLB sees the global tender price index (TPI) going up a further 15 per cent this year.
RLB managing partner Winston Hauw said: 'It will be a very challenging year for the construction market in 2008, given the high demand on construction resources from existing and new development commitments this year.'
RLB's international tender price matrix is based on the pricing of standard commercial and residential building models for the various cities.
For Hong Kong, Beijing and London, the TPI rose by one percentage point, while in New York and Dubai, it fell 4.5 and 5 percentage points in 2007 respectively.
In its analysis of building costs worldwide - which is based on similar construction-related costs - Singapore ranks below these cities, except for Beijing.
Building costs for premium office buildings in London and New York start at $5,916 and $2,857 per square metre respectively. In Asia, the costs for premium office buildings in Dubai, Hong Kong and Singapore start at $2,810, $2,368 and $2,150 psm respectively.
While some factors contributing to building costs are universal, Mr Hauw said construction demand in Singapore has doubled from about $11 billion two years ago, putting a strain not just on material costs, but on labour, equipment and management staff costs as well.
Although the building costs in Singapore are just a fraction below Hong Kong's, rental returns for landlords are higher.
According to the latest data by DTZ Debenham Tie Leung, Grade A office base rents in Hong Kong are $20.67 psf per month, compared to $12.15 psf per month here.
In both cities, vacancy for Grade A office space is 2.8-2.9 per cent.
DTZ executive director Ong Choon Fah said building costs and rental returns alone do not determine the investment potential of a city. 'It also has to do with how these investors choose to allocate their funds,' Ms Ong said. And with regard to Hong Kong, she added: 'It is still very much a China play.'
In a recent report by CB Richard Ellis (CBRE), estimated initial yields (gross) for the prime office sector in Beijing, Hong Kong and Singapore were 7-9 per cent, 4.5 per cent and 4.3 per cent respectively.
For the luxury residential sector, yields were 6-8 per cent, 3.5 per cent and 2.6 per cent respectively.
CBRE executive director for research Li Hiaw Ho said building costs may have some impact when calculating overall yields, but he believes this is minimal.
Instead, in Singapore, as well as Hong Kong, land costs are a much bigger factor. He also noted that while Singapore's land costs are high, Hong Kong's are higher.
On the lower yields here, Mr Li said: 'Lower yields can also mean that there are lower risks appttached to investing here.'
Knight Frank director of research and consultancy Nicholas Mak believes that for potential developers, building cost ranks below land cost, financing cost, and investor rate of return.
'When advising clients during the feasibility study stage, we find they are more concerned with pinning down land costs,' he said.
With respect to building costs, Mr Mak said: 'In a buoyant market, developers are more likely to pass on higher building costs to the buyer, while in a quiet market, the developers may have to absorb this.'
Study suggests strain on resources, no let-up this year.
The construction boom here is stretching resources, as costs of building materials look set to keep climbing through 2008.
Already, building costs are almost on par with Hong Kong, double that of Beijing, and just 30 per cent below New York.And according to a report by construction cost consultancy Rider Levett Bucknall (RLB), Singapore prices jumped 12 percentage points to 15 per cent in 2007.
RLB sees the global tender price index (TPI) going up a further 15 per cent this year.
RLB managing partner Winston Hauw said: 'It will be a very challenging year for the construction market in 2008, given the high demand on construction resources from existing and new development commitments this year.'
RLB's international tender price matrix is based on the pricing of standard commercial and residential building models for the various cities.
For Hong Kong, Beijing and London, the TPI rose by one percentage point, while in New York and Dubai, it fell 4.5 and 5 percentage points in 2007 respectively.
In its analysis of building costs worldwide - which is based on similar construction-related costs - Singapore ranks below these cities, except for Beijing.
Building costs for premium office buildings in London and New York start at $5,916 and $2,857 per square metre respectively. In Asia, the costs for premium office buildings in Dubai, Hong Kong and Singapore start at $2,810, $2,368 and $2,150 psm respectively.
While some factors contributing to building costs are universal, Mr Hauw said construction demand in Singapore has doubled from about $11 billion two years ago, putting a strain not just on material costs, but on labour, equipment and management staff costs as well.
Although the building costs in Singapore are just a fraction below Hong Kong's, rental returns for landlords are higher.
According to the latest data by DTZ Debenham Tie Leung, Grade A office base rents in Hong Kong are $20.67 psf per month, compared to $12.15 psf per month here.
In both cities, vacancy for Grade A office space is 2.8-2.9 per cent.
DTZ executive director Ong Choon Fah said building costs and rental returns alone do not determine the investment potential of a city. 'It also has to do with how these investors choose to allocate their funds,' Ms Ong said. And with regard to Hong Kong, she added: 'It is still very much a China play.'
In a recent report by CB Richard Ellis (CBRE), estimated initial yields (gross) for the prime office sector in Beijing, Hong Kong and Singapore were 7-9 per cent, 4.5 per cent and 4.3 per cent respectively.
For the luxury residential sector, yields were 6-8 per cent, 3.5 per cent and 2.6 per cent respectively.
CBRE executive director for research Li Hiaw Ho said building costs may have some impact when calculating overall yields, but he believes this is minimal.
Instead, in Singapore, as well as Hong Kong, land costs are a much bigger factor. He also noted that while Singapore's land costs are high, Hong Kong's are higher.
On the lower yields here, Mr Li said: 'Lower yields can also mean that there are lower risks appttached to investing here.'
Knight Frank director of research and consultancy Nicholas Mak believes that for potential developers, building cost ranks below land cost, financing cost, and investor rate of return.
'When advising clients during the feasibility study stage, we find they are more concerned with pinning down land costs,' he said.
With respect to building costs, Mr Mak said: 'In a buoyant market, developers are more likely to pass on higher building costs to the buyer, while in a quiet market, the developers may have to absorb this.'
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.
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.
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