Objectivity

S’pore listings of Indian Reits may be delayed

THEY should be perfect for choppy markets – low volatility securities in a mature stock market based on assets in a fast-growing Indian economy that many believe will weather the global storm.

But planned Singapore listings of real estate investment trusts, spun off by Indian developers, are being thwarted by the US subprime crisis, which has rocked stock markets and raised doubts about property investment, wherever it is.

DLF Ltd, India’s most valuable property firm, Unitech and Indiabulls Real Estate have been talking to investment banks about listing Reits in Singapore, possibly as early as the first quarter.

But Australian-backed MacarthurCook Industrial Reit last week became the latest to delay a deal when it shelved a $200 million secondary offering in a Singapore market that has fallen by a fifth this year.

One banker, who asked not to be named, said his team has been advising Indian issuers to hold off on Singapore issuance plans because of volatile markets.

‘The market is crap right now. I wouldn’t advise anyone to come and list now,’ the investment banker said.

Indian developers are keen to raise funds for expansion by selling buildings into property trusts, in which they would retain a controlling stake. The trusts should then become willing buyers of buildings as the developers roll out new projects.

The Indians have been watching the success of Singapore’s Reit market, which has grown to almost US$19 billion.

India does not yet allow the securities, although regulators issued draft Reit guidelines last month and analysts expect next month’s Budget to give some indication of when India will get its own Reit market.

DLF is looking to raise US$1.5 billion and has picked Goldman Sachs and Lehman Brothers, bankers have said.

Unitech wanted around US$600 million from listing an office trust and has mandated Deutsche Bank, JPMorgan, UBS and Morgan Stanley as book-runners, two people involved in the deal told Reuters.

The two developers had been looking to launch early 2008 IPOs, banking sources said, but the cost of equity has jumped as much as 30 per cent for some Singapore-listed Reits since July, said Mark Ebbinghaus, head of Asian real estate investment banking at UBS.

‘Where we are at present, clearly the cost of equity for a number of Reits is under pressure, largely because of the flow of capital leaving Asia,’ he said.

But deals could be pushed through because of the scarcity value of Indian property accessible to foreign investors.

‘As long as the pricing is acceptable, we would see a variety of vehicles having some support levels in the Singapore business trust environment,’ Mr Ebbinghaus said. ‘But the timing remains uncertain.’

Reits, which pay most of their rent as dividends, have caught on across Asia in the past five years, with investors liking the bond-like steady income with the prospect of growth if rents and property values rise.

But although Reits are usually regarded as defensive plays, trusts across the world suffered in the second half of last year as the US sub-prime crisis unfolded and hit commercial property markets in the United States and Europe.

The only Indian Reit, Singapore-listed Ascendas India Trust, closed at 99 cents yesterday, well below its IPO price of $1.18.

Singapore’s Reit index has fallen 21 per cent since the start of the year through Monday, in line with a 20 per cent slide by the benchmark Straits Times Index .

Because of the market downturn, at least US$800 million worth of IPOs in Singapore and several million dollars worth of secondary share offerings were delayed in the October-December period. — Reuters

CapitaLand plans to set up Reit for Indian retail malls

It unveils separate ventures with two partners for 15 projects worth $2.1b

CAPITALAND plans to create a Real Estate Investment Trust or listed vehicle holding Indian malls as an exit strategy for retail projects that it will develop jointly with two separate Indian partners.

The Singapore property giant yesterday announced separate joint ventures with Prestige Group and Advance India Projects Ltd (AIPL) to develop/invest in and manage an initial portfolio of 15 retail or predominantly retail projects worth over $2.12 billion. They will have a total lettable area of more than 11 million sq ft.

The tie-up with Prestige Group, the developer of The Forum in Bangalore, will be for malls in South India. The partnership with AIPL is for North India.

CapitaLand will participate in the develop- ment/investment of these various projects through the CapitaRetail India Development Fund, which has an equity fund size of about US$600 million (S$880 million). CapitaLand has 45 per cent stake in this fund, which was set up late last year.

The group’s 2006 tie-up with Indian retailer Pantaloon, which was to jointly manage about 50 malls throughout India, is moving on a slow track as these malls do not meet the rules for foreign direct investment in India, which means CapitaLand cannot take stakes in them. Foreigners are only allowed to invest in the development of properties in India with built-up areas of more than 50,000 sq metres.

However, CapitaLand Retail CEO Pua Seck Guan did not preclude Pantaloon – whose retail formats include Big Bazaar hypermarkets and Food Bazaar supermarkets – being a tenant at some of the 15 malls under the latest partnerships with Prestige and AIPL.

There may also be potential collaborations between CapitaLand and Prestige or AIPL to develop built-to- suit malls for Pantaloon, Mr Pua added.

Under the earlier deal, it has been reported that CapitaLand also made a US$75 million investment in the Pantaloon-sponsored Horizon Realty Fund, which is investing in predominantly retail real estate development assets in locations like Mumbai, Chennai, Bangalore and Kolkata.

CapitaLand Group president and CEO Liew Mun Leong said the latest joint ventures with Prestige and AIPL will further boost CapitaLand’s position as the leading retail real estate player in Asia and replicate its success in China. The group’s portfolio includes over 70 malls in China, seven in Japan, 17 in Singapore, and two in Malaysia. It has also started to look out for malls in Vietnam.

All 15 malls under yesterday’s announcements are under construction. When completed, the assets are likely to generate property yields (based on project cost), of 16 to 22 per cent – higher than the borrowing cost of 11-12 per cent in India, with a sufficient gap for a development profit.

Prestige Group chairman and managing director Irfan Razack pointed to abundant opportunities in India’s retail real estate market, with rapid urbanisation and growing affluence, and where ‘organised retail formats’, such as shopping centres and department stores, constitute only 3 per cent of the retail market.

AIPL executive director Daljeet Singh said CapitaLand’s strong real estate financial skills sets will add significant value to their joint venture, especially when the two parties share a common exit strategy for the retail assets, through a listed vehicle or Reit.

AIPL’s Udaipur Celebration mall in Rajasthan, one of India’s top tourist destinations, opens in Q1 2009. In all, the CapitaLand-AIPL joint venture has identified an initial batch of eight projects which will be completed between Q1 2009 and 2010 and worth about S$1 billion (26.5 billion rupees), based on 100 per cent ownership.

CapitaLand Retail will hold a majority stake (expected to be over 60 per cent) in both the development/investment and mall management entities covering the joint venture, with AIPL holding the rest.

CapitaLand’s tie-up with Prestige is for an initial slate of seven projects expected to be completed between Q1 2009 and 2011 and worth about S$1.12 billion (29 billion rupees), based on 100 per cent ownership. The two partners will hold 50:50 stakes in both the develop- ment/investment and mall management entities for their joint venture.

CapitaLand will also have right of first refusal for future mall or predominantly retail projects by Prestige and AIPL.

Various Considerations