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ASIA REIT CAPITALIZATION TOPS US$80 BILLION, CBRE RESEARCH FINDS

 A total of 11 new Real Estate Investment Trusts (REITs) were listed in Asia during the first half, bringing REIT market capitalisation to over US$80 billion as at end-June 2007, according to CB Richard Ellis.  The level of Asia REIT capitalization is approximately twice of that at the end of 2005.

According to the “REITs Around Asia 1H 2007” report prepared by CBRE Research Asia, Japan remains the largest REIT market in Asia, with market capitalisation having attained the level of US$49.1 billion as of the first half of 2007, and acquisition activities by J-REITs remaining at buoyant levels. While Singapore and Hong Kong are striving to be regional REIT centres, the Thailand and Malaysia REIT markets saw significant growth through the listing of domestic REITs. South Korea was the only market to record a reduction in market capitalisation as two K-REITs reached maturity during the review period. 

In Thailand, two property funds were listed on the Stock Exchange of Thailand in the first half of 2007, bringing the total to 14 with a market capitalisation of about THB 46.4 billion. The JC Property Fund (JCP) was listed in January, with the Government Savings Bank Private Fund holding over 99% of units so that there has been no activity in the public market. JCP’s THB 620 million portfolio consists of space in the JC Kevin Office Tower A building and a car park, both held under a 30-year lease with an option to extend for five years. Gold Property Fund (GOLDPF) was listed in May. It has invested in the 30-year land and building leasehold Mayfair Marriot Executive Apartment serviced apartment complex, and has an option to renew for another 30 years. The 26-storey building is owned by a subsidiary of Golden Land Property Development. GOLDPF has guaranteed rental returns from the property for five years and will pay dividends of not less than 90% of the annual net profit. The dividend yield is expected to be about 8%.

Though only one new REIT was listed in Japan during the first half, large foreign investors such as CapitaLand, GE Real Estate and Morgan Stanley remained active in the market, purchasing stakes in J-REITs and in some cases becoming the largest shareholders. In Singapore, three new REITs, including CapitaRetail China Trust, have been listed since December 2006. The number of S-REITs has increased steadily, rising from from seven in 2005 to 16 in the first half of 2007. The market continued to diversify, with various S-REITs now focused on assets including serviced apartments, healthcare facilities and hotels. Singapore’s emergence as a regional hub for cross-border REITs, supported by the imminent relaxation of government regulations on REITs, could see the number of S-REITs reach 30 in 2008. In its recently released report, CBRE Research Asia noted that in Hong Kong, H-REIT’s stable income growth made them less attractive to investors during the bull market of the first half year. Despite the underperformance in price, H-REITs listed longer than a year have reported better income statements as a result of gains in property revaluation and growth in rental income.

In Taiwan, investors continued to show a marked preference for TREITs backed by well-known local financial/insurance groups such as Fubon and Cathay. One new REIT was listed during the period under review, and several well-known conglomerates are reportedly considering packaging their properties into REITs. In Thailand, the downward interest rate trend is likely to increase the attractiveness of REITs. Most REITs are trading at a discount of 2%-34% to their respective NAVs. Major Lifestyle Property Fund and Property Perfect are expected to list in the second half. Four new M-REITs were listed in Malaysia and existing and new M-REITs were active in the acquisition market. Quill Capita Trust, Al-Hadharah Boustead REIT and Amanahraya REIT traded above their IPO price on their debuts.

In South Korea, the government passed the latest amendments to the K-REITs Act in June 2007 and the measures will take effect in October. The revisions will further simplify and ease regulations governing the establishment and management of K-REITs.

Following the strong first half performance, the US sub-prime lending crisis sent tremors through global financial markets and led to stock market volatility across the globe during July and August 2007. However, as the generally robust fundamentals of Asian property markets have been as yet unaffected by turbulence in the financial markets, in its recently released report CBRE Research Asia stated that the recent price corrections have made Asian REIT valuations more attractive to bargain-hunting investors and those seeking long term periodic income. Also, there has been no sign of a slow down in portfolio building via acquisitions by major REIT sponsors, who are taking a long-term view in developing REITs in the region.

Looking forward, competition in the Asian REIT market is likely to grow more intense as additional cross-border REITs are listed, particularly in Hong Kong and Singapore. In Singapore, proposed amendments to S-REIT regulations currently under consideration 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. In its recently released report, CBRE Research Asia also noted that in the face of competition from Singapore as the regional REIT centre, the Hong Kong Securities and Futures Commission recently collected market opinions on revitalising the REIT market, which may be taken into account in regulatory revision. While further loosening in rules may provide some stimulation to the market, the implementation of a longer term growth strategy remains the crucial concern of REIT investors as they expect sustained portfolio development via acquisitions, rental enhancements and geographical diversification in their investments.

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