REITs – BT

Reit players see growth via acquisitions in region

This will be driven by market liquidity and reduced capital cost

ASIAN real estate investment trusts (Reits) are poised to grow through acquisitions, industry players said at a forum yesterday.

The industry players, who were speaking at a panel discussion at the annual Real Estate Investment World Asia conference, said the expected growth will be driven by the lower cost of capital and ample liquidity in the market.

‘The cost of capital is getting back to an area where it makes it more attractive for Reits to acquire assets,’ said Jason Kern, head of real estate advisory at Hongkong and Shanghai Banking Corporation (HSBC).

Mr Kern noted that the Reit market in Asia has picked up in the past year, with six new Reit listings over 12 months. According to data from HSBC, there are currently 98 Reits with a total market capitalisation of US$97 billion listed in Asia.

Nicholas McGrath, chief executive of the manager of Singapore-listed AIMS AMP Capital Industrial Reit, agreed that the cost of capital had fallen and added that there is a lot of liquidity in the market.

The panellists also said that they expect more Reits to launch their initial public offerings (IPOs) in the coming months.

Kevin Xayaraj, chief executive of Singapore’s first Syariah-compliant Reit, Sabana Reit, expects more similar Reits to be floated this year. Sabana Reit was listed on the Singapore Exchange in November 2010.

‘With the success of the IPO, I think there will be a lot of Syariah-compliant Reits coming to Singapore and the rest of Asia,’ he said.

But Peter Churchouse, managing director of Portwood Capital, noted that there are still some major obstacles that prevent the Reit industry in Asia from expanding as quickly as it would otherwise have.

There is still a sense among investors that some landlords use Reits as vehicles to ‘dump’ unwanted and unattractive assets, Mr Churchouse said.

In addition, Reits are also not high-growth instruments, so investors who look for capital gains are not as keen on them. Mr Churchouse noted that the Reit sector now accounts for only 12-15 per cent of total invested real estate in the Asia-Pacific. He said he would like to see the proportion climb to 30-40 per cent in the future.

For Singapore, ratings agency Moody’s Investors Service this week reiterated its ‘stable’ outlook on Singapore-listed Reits (S-Reits) for the next 12-18 months.

‘We expect S-Reits to use their well-capitalised balance sheets to continue acquisitive strategies and assume they will fund potential acquisitions with a mix of debt and equity while maintaining leverage within targeted limits of 40-45 per cent,’ the firm’s analysts wrote in a note.