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Second Half of 2009 Sees Increase in Refinancing and Consolidation Activity

By on Mar 03, 2010 in Research

REITS 2H 2009

Asian REITs continued to recover in the second half of 2009 as the stock markets in Asia improved overall and conditions in the credit market became more relaxed. The total market capitalisation of Asian REITs rose 17.6% in the second half and 34.5% for the whole of 2009 thanks to the recovery in prices and the issuance of new shares. The market size of Asian REITs has yet to recover to pre-crisis levels, with their market capitalisation as of the end of 2009 still 17.4% lower than that recorded at year end 2007.

Second half of 2009 sees increase in refinancing and consolidation activity

The review period saw a rise in corporate activity in the Asian REIT market, mostly involving mergers and consolidation or refinancing. In Japan, four mergers involving J-REITs were announced following revisions to the tax code that clarified the definition of distributable profit, thereby clearing a former obstacle to acquisition or consolidation. Nippon Residential Investment, sponsored by the bankrupt Pacific Holdings, agreed to merge with Advance Residential Investment, while the failed New City

Residence J-REIT selected Daiwa House Industry Co as its new sponsor and will merge with BLife Investment Corporation. LaSalle Japan REIT agreed to be absorbed by Japan Retail Fund while Tokyo Growth REIT and LCP REIT also announced plans to combine. The above mergers are scheduled to be completed within the first half of 2010.

In Singapore, Australia-based investor AMP Capital acquired a 19.2% stake in MacarthurCook Industrial REIT (subsequently renamed AIMS AMP Capital Industrial REIT) and a 50% holding in the REIT’s management company for S$54.1 million (US$38.5 million). The portfolio of MacarthurCook Industrial REIT was valued at approximately S$494 million (US$351.5 million) as of 30 September 2009, reflecting a substantial discount on the acquisition price.

In the second half, the overall credit condition of Asian REITs improved as most managed to refinance or extend their loan obligations and advance their unit prices. The review period saw several J-REITs seek to collectively raise over JPY 65 billion (US$706 million) capital through new share issuances. In October, Nippon Accommodations REIT announced plans to raise a maximum of JPY 20.5 billion (US$220.7 million) through the issue of 42,000 shares, while November saw Kenedix REIT

raise roughly JPY 8.5 billion (US$91.5 million) through a public stock offering. December saw Japan Real Estate REIT announce a public offering of 42,000 new units to raise approximately JPY 25.1 billion (US$270.2 million), while Nomura Real Estate Residential Fund raised JPY 11.5 billion (US$124 million). The establishment of the Kanmin Fund, a Public-Private Real Estate Market Stabilisation Fund, during the review period also helped boost public confidence in the J-REIT sector. The Kanmin Fund is expected to have total capital of JPY 450-500 billion (US$4.8-5.4 billion).

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