Bangkok--Dec 6--CBRE
The Asian Real Estate Investment Trust (REIT) market has taken great strides this year as leading countries and regions continue to thrive on the back of a spate of new listings, while laggards are catching up quickly, buoyed by higher investment yields and the removal of regulatory impediments, according to the latest CB Richard Ellis “Reits Around Asia Review”.
Underpinning the surge in the popularity of REITs during the past few years has been the low interest rate environment; proactive government support; the stellar performance of earlier listed REITs and the general upswing in the property markets of Asia’s leading economic hubs, supported by the continued strength of the region’s economies.
Japan and Singapore thus far have emerged as the countries with the most mature REIT markets in Asia, accounting for 73% and 21%, respectively, of Asia’s US$ 30.3 billion (Baht 1,253.5 billion*) total listed REITs/ property fund market capitalisation by end-October. Since inception in September 2001, the Japanese REIT market has seen the listing of 26 REITs with a combined market capitalisation of JPY 2.6 trillion (Baht 897.5 billion*) as of end-October, an almost 10-fold rise since the first two J-REITs were launched in September 2001. This surge in listings included 11 IPOs in the first ten months of this year.
Striving to become Asia’s REIT hub, Singapore has constantly reviewed and refined its REIT regulations. Further to the implementation of a five-year waiver on the 3% stamp duty in transferring assets to a REIT and reduction of withholding taxes for foreign institutional investors from 20% to 10%, earlier this year, the Singapore authorities revisited their Property Fund Guidelines. Major changes which have been made recently include lifting the gearing limit from 35% to 60% and allowing part-ownership of assets. Such measures are expected to inject added impetus to encourage further acquisitive growth and facilitate overseas expansion.
Two more S-REITs debuted this year, namely the Macquarie MEAG Prime REIT (MMP REIT) and the Mapletree Logistics Trust, which were launched at initial forecast yields of 5.12% and 6.0%, while their offerings were about 30 and 44 times subscribed, respectively.
Despite soaring REIT prices over the past few years, which have tended to compress dividend yields, REITs still offer a healthy yield spread over government bonds. J-REITs, trading at an average 3.7% yield, maintain a spread of about 220 basis points (bps) above the 10-year government bond yield, a level similar to that witnessed in Singapore (200 bps). This bodes well as compared with the U.S. REIT market where the yield spread over 10-year government bonds is a mere 60 bps.
Suppressed by interest rate jittery and profit-taking activities, the REIT markets in Japan and Singapore have shown signs of shifting to a lower gear recently with the J-REIT Index exhibiting a retreat of 9% by October from its peak in mid-July, while S-REITs saw price correction from 52-week-highs. Moreover, after surging to a high of 1.13 Singapore dollars on its first trading day on the stock exchange, MMP REIT has subsequently returned to its launch price at 0.98 Singapore dollars, suggesting that investors should be prepared to take a longer term view and put REITs in their proper perspective as a vehicle providing stable income rather than a growth stock.
Increasingly, CB Richard Ellis is seeing intensified competition amongst different countries in Asia for a bigger share of the regional REIT market as well as to attract the interest of overseas investors.
South Korea, for instance, is trying to invigorate its REIT market by amending the Real Estate Investment Trust Act, extending tax incentives to externally-managed general REITs, and easing the borrowing and initial capitalisation requirements. Two additional REITs were added to the market during the year, including the first general K-REIT that can enjoy tax exemptions without having to participate in corporate restructuring.
Seven months after Taiwan’s inaugural REIT, Fubon No. 1, was listed on the stock exchange in March this year, the Cathay No. 1 REIT, carrying a forecast dividend yield of 4.15%, began trading from October 2005. The unit prices of both REITs have remained stable since launch in spite of great volatility in the local bourse.
Malaysia and Thailand are two of Asia’s often overlooked REIT markets, but in fact both have established REIT-like fund markets, since 1989 and 2002 respectively, under the names of property-trust funds and property funds for public offering (PFPO). Malaysia’s REIT market received a substantial boost this year on the back of eased regulations and the introduction of tax transparency treatment. Axis-REIT, the first M-REIT in many years, was listed in August, comprising five suburban office and warehouse properties. At a launch price of RM 1.25 Malaysian Ringgit, Axis offered an indicative gross yield of 8% (annualised) for 2005, which has subsequently fallen to 5.4% on 47% unit price appreciation.
Ms. Aliwassa Pathnadabutr, managing director of CB Richard Ellis Thailand, reports that Thailand’s PFPO market is also booming with the new listing of six property funds in the year up to October. The largest of which is the CPN Retail Fund, comprising two shopping malls with a total worth of THB 10.92 billion. Thai property funds carry yields of 6%- 8%, significantly higher than the average yields of 3.7% and 5.1% offered by J-REITs and S-REITs, respectively.
As a laggard in the region, Hong Kong is now finally moving back to the front lines with the launch of The Link REIT, comprising HK$ 33.8 billion (Baht 180.8 billion*) worth of car park facilities and shopping centres and expected to provide a dividend yield of around 6% based on its offer price. Its share price rose 14.6% on the first trading day on 25 November 2005, beating market expectations of up to 10% rise on debut. The Link’s strong debut should serve to bolster confidence in future H-REIT listings. After The Link, more H-REITs are on the way to market including Cheung Kong Holdings’ Prosperity REIT, comprising seven office and industrial properties, and the GZI REIT to be launched by Guangzhou Investment Company consisting of four commercial and shopping centre properties which are mostly located in Guangzhou’s Tian He District, a prime business locale. These two upcoming REITs will offer yields of about 5~6% and 7% respectively, according to media reports.
Going forward, CB Richard Ellis forecasts that more Asian REITs or prospective REIT issuers will adopt a regional expansion strategy to grow their portfolio and boost investment returns, with Hong Kong and Singapore the likely beneficiaries of this trend. The credit-tightening policies to curb property prices, the rapid expansion of retailers in China, combined with the flourishing regional logistics markets on the back of rapid growth in merchandise trade will fuel more China REIT listing or asset disposals by developers, retailers and third-party logistics players. Leading the way will be Singaporean and Australian investors, notably Mapletree, CapitaLand and Macquaire Bank, which are known to be in the market for established overseas hypermarket-anchored shopping malls as well as high-yielding industrial properties in the Greater China region over the past year, including a total of seven industrial properties and over 30 shopping malls.
The inception of Hong Kong REIT market; the revival of the Korea, Malaysia and Thailand REIT markets; and the anticipated emergence of Pan-Asian REITs, all clearly suggest that there are interesting times ahead for REITs around Asia.
* As of 2 December 2005
1 US$ = 41.37 Baht 100 JPY = 34.52 Baht 1 HK$ = 5.35 Baht
About CB Richard Ellis
CB Richard Ellis (NYSE:CBG), a FORTUNE 1000 company headquartered in Los Angeles, is the world's leading commercial real estate services firm (in terms of 2004 revenue). The company serves real estate owners, investors and occupiers by offering strategic advice and execution for property leasing and sales; property, facilities and project management; corporate services; debt and equity financing; investment management; valuation and appraisal; research and investment strategy; and consulting. Including partners and affiliates, the company has over 300 offices in more than 50 countries around the world.
CB Richard Ellis established an office in Bangkok in 1988 and in Phuket in 2004. CB Richard Ellis (Thailand) Co., Ltd. has grown to be a leading real estate services provider, offering a full range of services including sales and leasing for all types of property, property and facilities management, valuation and advisory, and research and consulting. For more information, visit the company's website at www.cbre.co.th.
* Includes partner offices
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