Complete Property Market Updates of Singapore

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 $37A 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 $607S 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.

Source : Business Times - 7 Jan 2008

SINCE consumer confidence is the most fickle of all economic factors, the retail trade is a good barometer for the health of an economy.

For 2007, this barometer has been in the ‘extremely healthy’ range. Sales have been up - to the tune of 14.4 per cent as of June 2007 - and so has rental of retail space.

We expect retail to continue nicely right through 2008. For one thing, retail malls - led by the professionally run retail Reits - are investing in physical enhancements to improve and maintain competitiveness.

The enhancements inject a new vibrancy, creating a better experience for the shoppers and improved business for the tenants. For example, thanks to Anchorpoint’s $12 million repositioning as a village-mall, shopper traffic and tenant business have improved substantially.

The malls are not the only innovators. Retailers, too, are coming up with new concepts. For instance, the Tung Lok Group created their first kitchen-concept eatery in the new Anchorpoint with Zhou’s Kitchen. Similarly, Charles & Keith, G2000, FOS, Club Marc, City Chain, Capitol Optical, Pedro and Giordano have also created unique outlet concepts.

With the advantages of Reits, there will be increasing securitisation of the Singapore retail scene through 2008, with more properties being injected into a Reit structure.

Singapore’s Reit scene is only about five years old but the market has grown. By September 2007, there were 18 listed Reits with a total market capitalisation of $29.5 billion, which made Singapore the third-largest Reit market in the Asia-Pacific and the seventh largest worldwide.

We expect more Reits to be launched in the medium term, with at least one or two being retail Reits or Reits with retail components.

The two retail Reits listed at present - Frasers Centrepoint Trust and CapitaMall Trust - are also growing aggressively in the region, particularly in Malaysia and China.

Institutional and retail investor appetite for Singapore Reits continue to be strong.

Reit prices took a bit of a correction in the second half of 2007 when prices fell by about 25 per cent as a result of the US sub-prime fears. I believe the increased volatility will attract more investors to Reits in 2008. Reits are a defensive investment instrument - providing a consistent underlying yield and yet providing exposure to the on-going recovery and long-term growth of the Asian economies and property markets. 

Investors will gravitate towards Reits with quality assets. In this respect, suburban malls are very resilient. After all, Singaporeans will still need to shop for their basic necessities. Suburban malls in Singapore managed to ride through the Sars epidemic as people cut back on luxury goods and focused on daily essentials. There exists a very inelastic demand at the suburban mall level.

Investors will also look to Reits with proven track records. Typically, institutional investors have found Reits associated with strong sponsors attractive because of their ability to leverage on the synergies with the sponsor for growth opportunities.

Ultimately, the outlook on Singapore’s overall Reit market remains very positive, with market experts expecting it to double by 2010. Retail Reits should continue to remain stable and sensible investment options, even in the current sub-prime environment.

The writer is CEO, Frasers Centrepoint Trust

Source : Business Times - 20 Dec 2007

REAL estate investment trusts listed in Singapore (S-Reits) must look at developing their own assets going forward, instead of just buying from sponsors or third-party vendors.

Right now, most of them are suffering from a double whammy - potential assets are lacking and capital is getting more expensive.

Too many Reits are competing for a fixed number of assets in Singapore. Since the first S-Reit was listed in 2002, the market has grown by leaps and bounds. Currently, there are 20 Reits listed on the Singapore Exchange.

In addition, foreign funds are also snapping up commercial properties, making assets even scarcer. These funds are also eyeing assets identified by developer-sponsored Reits as being in their asset pipelines.

For example, CapitaCommercial Trust (CCT) did not buy CapitaLand’s Temasek Tower and Chevron House. Market watchers said that a third-party buyer’s offered price must have been at a level that was not accretive to CCT. This means that a sponsor’s portfolio is a guaranteed asset pipeline for a Reit only if no third party is willing to offer a higher price - an unlikely scenario in a hot property market.

Compounding the problem is the jittery market, which makes raising funds for acquisitions difficult.

For example, K-Reit Asia recently decided not to proceed with a convertible bond and unit issue to finance its one-third purchase of One Raffles Quay, citing weak equity and credit markets. Parent company Keppel Corp instead provided a revolving loan facility of up to $960 million.

This pushed up the Reit’s gearing to a relatively high 55 per cent - not far from the regulatory cap of 60 per cent - giving K-Reit little room to fund future acquisitions with debt.

Citigroup recently downgraded K-Reit Asia to a ’sell’ from a ‘buy’, citing stalling acquisition growth. The bank also cut the stock’s target price to $2.17, from $2.87 previously.

‘Acquisitions will be constrained by limited debt headroom of about $100 million,’ the bank said in a research note.

Analysts have identified four other S-Reits - Allco Reit, Mapletree Logistics Trust, Cambridge Industrial Trust and Saizen Reit - as also having relatively high gearing.

Faced with these constraints, many Reits here will sooner or later have to go down the development route.

‘So far, A-Reit is the only Reit that has pursued this route with some success,’ notes OCBC Investment Research. ‘Going forward, with less opportunity for growth, we anticipate to see more S-Reits take on development projects.’

In particular, developers looking to list Reits in 2008 should look at setting up stapled trusts. Right now, there is just one such Reit listed here - CDL Hospitality Trusts, which consists of a hospitality Reit and a business trust, although the business trust is dormant at present.

In a stapled trust in which both parts are functional, investors will get stable returns from the Reit, which could be solely used as a vehicle for holding assets.

The stapled business trust, on the other hand, can take on development jobs and guarantee a pipeline of assets for the Reit. Such a product should prove to be popular with investors, and will also be a fresh and differentiated offering in Singapore’s Reit market.

Source : Business Times - 17 Dec 2007