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RETAIL investors will now have an opportunity to subscribe for units in what is touted as Singapore’s first independent industrial real estate investment trust (Reit).

Cambridge Industrial Trust (CIT), which delayed its initial public offering (IPO) last month because of market conditions, registered its prospectus with the Monetary Authority of Singapore yesterday.

Retail investors will have until noon on July 19 to subscribe for six million units of CIT at $0.68 per unit. Depending on whether an over allotment option is exercised or not, investors will get a forecast initial annualised distribution yield of between 7.50 per cent and 7.71 per cent.

Market players said CIT’s international placement of 188.6 million units to institutional investors has been 1.7 times covered.

Finian Tan, chairman of CIT’s manager, Cambridge Industrial Trust Management (CITM), said CIT offers ‘one of the highest yields compared with other Reits in the Singapore market’.

CITM is a joint venture between Cambridge Real Estate Investment Management, Singapore-listed CWT and Japan’s Mitsui.

The development of Singapore’s Reit market to date has been led by Reits whose sponsors are major property developers. Investors like such Reits which offer access to a pipeline of acquisitions.

CIT is not a developer-sponsored Reit but Leong Weng Chee, chief executive officer of CITM, says: ‘Manager’s independence is an advantage in approaching third-party property owners as we do not have any conflicts of interest.’

Mr Leong believes there is scope for CIT to grow via acquisitions. He points out ‘only 12 per cent of the industrial property stock is in Reits’. He adds: ‘Our track record shows that we have assembled 27 properties within a space of nine months.’

CIT has an initial portfolio of 27 properties in Singapore, with a total appraised value of $519 million. This trust, which invests in properties used for industrial and warehousing purposes, intends to explore opportunities in China, Malaysia and Thailand in the short to medium term.

Source : Business Times - 15 Jul 2006

ASCENDAS Real Estate Investment Trust (A-Reit) announced a distribution per unit (DPU) of 3.09 cents for the quarter ended June 30, up 9 per cent year on year.

Revenue for the latest quarter was up 35 per cent year on year to $68 million while net property income rose 27 per cent to $50.1 million.

Tan Ser Ping, chief executive officer of A-Reit’s manager, Ascendas-MGM Funds Management, attributed the positive results to organic growth coming from positive rental revisions in high tech industrial and science and business park properties as well as prior-year acquisitions.

‘We are pleased to begin the new financial year with a sound first-quarter performance,’ said Mr Tan.

Looking ahead, Mr Tan said: ‘With the improving market conditions in the high end of the industrial property market, A-Reit is well positioned for another year of stable returns for its unitholders.’

A-Reit said it is positive on the outlook for high tech industrial and business and science park space. However, the rental outlook for flatted factories and logistics space is flat.

A-Reit’s latest quarterly DPU represents an annualised yield of 6.4 per cent based on the closing price of $1.92 per unit on June 30.

As at end-June, A-Reit had a portfolio of 66 properties, valued at $2.9 billion, housing a tenant base of over 740 international and local companies.

The occupancy level of A-Reit’s portfolio of 66 properties rose to 96.1 per cent as at end-June from 94.9 per cent a year ago.

In the latest quarter, A-Reit completed the acquisition of two properties worth a total of $78 million. Additionally, the trust has announced the acquisition of three properties for a total of $150 million, that have yet to be completed.

A-Reit said with concerns over rising global interest rates being a focus for Reit investors, it has continued its hedging programme to fix a large proportion of its interest rate exposure through interest rate swaps.

Source : Business Times - 14 Jul 2006

NEW business models like real estate investment trusts (Reits) are posing new challenges that the valuation industry must be flexible enough to meet.

Reits were held up as a prime example yesterday by the Minister of State for Finance and Transport, Mrs Lim Hwee Hua, who said valuers would have to venture into the realm of finance in order to tap the fast-growing sector.

Mrs Lim told the Asean Valuers Association (AVA) Congress that industry professionals will need a better understanding of the complex

real estate transactions and the underlying business model that property trusts employ.

Reits have become one of the most successful business models that have developed in recent years, with the Asian sector hitting a market capitalisation of about US$31 billion (S$49.4 billion) by the end of last year.

The Singapore Government has also promoted Reits through revised regulations and tax incentives, helping the country become a regional leader.

It has meant opportunities - and challenges - for valuers.

‘As new business models emerge in the real estate sector and advancements are made in technology, valuers must be prepared to exploit the latest technological advancements and improvements in financial modelling to offer new business solutions,’ said Mrs Lim.

She gave the opening address at the congress, which has attracted about 150 valuers from across the region.

She said the growth of Reits and the influx of foreign investment into the region have also meant an increase in cross-border real estate investments.

‘This means Singaporean and Asean valuers will increasingly have the opportunity to conduct valuations beyond their traditional domestic markets,’ said Mrs Lim.

She added that exploiting such cross-border opportunities would require valuers to keep up with new developments in Asia and the issues that will affect the property valuation, such as changes in legal frameworks and even specific political events.

As well, industry associations like the AVA and the Singapore Institute of Surveyors and Valuers, which organised the three-day event, must organise more training courses to raise the level of professionalism in the industry, she added.

Source : Straits Times - 4 July 2006

INVESTORS are spooked by the damage that rising interest rates can do to the prices of real estate investment trusts (Reits). Reits are a hybrid between equities and bonds, providing investors with a stable stream of distribution income.

Investors price Reits at a premium to the risk-free rate, being the 5-year or 10-year government bond yield. Everything being equal, an increase in the risk-free rate should lead Reit prices to fall by an amount which enables the yield to the investors to be preserved.

For a Reit trading at a yield of 6 per cent - which is where some Singapore Reits are trading at - this means that the price will fall by 4 per cent when interest rates increase by 0.25 of a percentage point.

Investors are right to be concerned about the damage that rising interest rates can do to Reits. But in a climate of volatility and uncertainty in global equity markets where there is a danger of a sudden double-digit plunge in equity prices to reflect an increased risk premium in the market, Reits, relative to other equities, stack up well.

Interest rates may go up but the US Federal Reserve will, in all likelihood, hike rates at a measured pace. Meanwhile, a Reit trading at a yield of around 6 per cent gives investors a significant pick-up in yield compared with promotional fixed-deposit rates that are just north of 3 per cent.

While interest rates may go up, so can Reit distributions. Historically, Reits here have posted growth in distribution per unit year-on-year in the high single digits or even in the double digits.

Singapore-sourced and Singapore dollar-denominated cash flows are highly valued by global investors because of the low-risk environment here and the strength of the Singapore dollar. These factors are also providing support for Singapore real estate as are the plans being implemented to make Singapore a better place to live, work and play.

There is little doubt that there are good times to come for owners of prime office and retail property in Singapore. On this basis, investors could do well to look closely at Reits that own such assets, an example being Suntec Reit.

With more new Reits coming on the Singapore market, investors have choice. New asset classes, new geographies and new structures will add to the depth of Singapore’s Reit market. But amid choice, investors can stick to the property asset classes like office and retail, which are popular with Reits globally.

There is no need to consider hotels, as earnngs streams of such assets can be highly volatile.

There is no need to consider trusts that focus on sale and leaseback of facilities, as such Reits could be hard-hit should tenants fail as these properties are often purpose-built facilities where rents may have been propped up to achieve certain capital values.

As for Reits with overseas assets, Singapore investors can consider them only if they are adequately compensated for the currency risks and if the assets are appropriately priced vis-a-vis risk free rates in the respective countries, which almost invariably exceed that in Singapore.

There may be an ever increasing array of choices, but investors can do well by going for Reits with properties that are leased to independent third parties, located in Singapore and in the sectors that benefit from Singapore going up the ladder in the league of global cities.

Not surprisingly, Reits first emerged in the Singapore market a few years ago amid an environment of extremely low interest rates. With sufficient investor education, Reit prices then trended upwards substantially as investors appreciated the good yields they could get from Reits.

Today, more sponsors see the value of launching Reits and Singapore continues to gain in popularity as a listing venue for Reits. But the spectre of rising interest rates looms as a major challenge to investors.

Let us not be unduly worried by rising interest rates but instead remember that Reits can be an excellent proxy for income streams from quality assets and focus on those Reits that offer such exposure.

Source : Business Times - 28 Jun 2006

Moves are to fund $2.19b Raffles City purchase which will raise Reits’ DPU

CAPITALAND’S real estate investment trusts (Reits) - CapitaCommercial Trust (CCT) and CapitaMall Trust (CMT) - will both raise debt and issue new units to help pay for the $2.19 billion Raffles City complex.

The complex is owned by Tincel Properties, which is in turn 45 per cent owned by Raffles Holdings. Raffles City was sold to CCT and CMT in March, with CCT to own a 60 per cent stake and CMT to hold the remaining 40 per cent stake.

CMT intends to fund its 40 per cent stake through long-term borrowings and a bridge loan facility. The bridge loan will then be repaid with the proceeds from a proposed issue of new units of between $240 million and $420 million.

Depending on the final combination of funding, CMT’s gearing could range from 37.1-41.1 per cent.

The acquisition is expected to increase CMT’s distribution per unit (DPU) from 11.11 cents to 11.21 cents for the period from Sept 1 to Dec 31, based on an estimated issue price of $2 per new unit. For the financial year ending Dec 31, 2007, DPU projection is 11.43 cents.

CMT’s asset size will also rise from $3.5 billion to $4.3 billion. CMT CEO Pua Sek Guan said it is looking into enhancing the value of the Raffles City complex by rezoning areas like the convention centre into more profitable retail zones.

Taking advantage of its increased size, Mr Pua also said that the Reit will undertake local development projects with CapitaLand in the future. Under the government’s guidelines, Reits can take on development projects which are no more than 10 per cent of its deposited assets.

Mr Pua highlighted that there is a potential upside from rental increases. ‘If you strip away the anchor tenants, the Raffles City rent is not that much higher than rents at suburban malls like Tampines Mall.’ Currently, average monthly rental at Raffles City Mall is $13.80 psf. The office tower commands a rent of between $7-$7.50 psf.

As part of its growth strategy, CMT will also invest up to a 20 per cent stake in CapitaLand’s proposed China Retail Reit. Mr Pua, however, reiterated that it plans to expand its portfolio within Singapore as there are still opportunities here.

CCT, which will acquire a 60 per cent stake in Raffles City, hopes to raise up to $803.2 million by issuing new shares. The Reit also intends to borrow up to $519.8 million. This will raise gearing to 33 per cent.

CapitaLand Group president and CEO Liew Mun Leong said: ‘As a sponsor of CCT, we are pleased to provide a firm commitment to the trust by undertaking to subscribe new units to maintain our existing stake of 37.4 per cent, and we could even increase it to about 46 per cent to demonstrate our confidence in this transaction.’

CCT’s portfolio size will increase from $2.2 billion to $3.6 billion. It is forecasting an increase of 8.6 per cent in its distribution per unit (DPU) to 7.34 cents for the period from Sept 1 to Dec 31 with the acquisition at an estimated issue price of $1.65 per unit. For the year ending Dec 31, 2007, forecast DPU is 7.56 cents.

Alluding to the timing for the issue of new shares in light of current initial public offer (IPO) woes, David Tan, CEO of CCT manager CapitaCommercial Trust Management Ltd said that an IPO is very different from a secondary offer as CCT already has a good track record.

‘We expect the secondary offer to do much better than an IPO,’ he added.

An extraordinary general meeting will be convened on July 13 to seek unitholders’ approval.

Source : Business Times - 27 Jun 2006