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SUNTEC Real Estate Investment Trust has posted distributable income of about $27 million for the first quarter ended Dec 31, 2006, up 21.7 per cent from the same year-ago period.

The jump was achieved on the back of a 16.5 per cent increase in gross revenue to $45.9 million, thanks partly to a full quarter’s contribution in the latest results from Park Mall and Chijmes bought in October 2005 and December 2005 respectively, as well as from organic growth in both the office and retail portfolios in Q1 2007. Revenue from the acquisition of 12,045-square-foot of strata office space in Suntec City Tower 1, which was completed on Dec 19 last year, was also included in the latest Q1 results.

ARA Trust Management (Suntec) Ltd, the manager of the trust, said it expects the performance of the trust’s portfolio of office and retail properties to strengthen favourably in the year ahead. Distribution per unit for Q1 will be 1.963 cents, which on an annualised basis reflects an annualised distribution yield of 4.1 per cent based on Suntec Reit’s $1.90 closing price on the Singapore Exchange yesterday. The counter ended four cents higher from Friday’s close.

Pursuant to the cumulative distribution on Nov 29 last year of 2.669 cents per unit for the July 1-Nov 5, 2006 period, unit-holders will receive a distribution payout of 1.201 cents per unit for the Nov 6-Dec 31, 2006 period. Giving an update on asset enhancement works at its properties, the trust manager said that Suntec City Mall’s newly opened digital zone e-life@Suntec achieved average rent of close to $16 per square foot (psf) per month compared with $6.14 psf per month previously.

The upcoming youth zone, named ‘MY.PLAYGround’, is slated for opening in early April this year. Works for phase one of the Fashion zone is slated to begin early next month.

Source : Business Times - 30 Jan 2007

INDONESIAN Lippo Group’s First Real Estate Investment Trust (Reit) will double its portfolio size to $500 million in the next three years and raise it further to $1 billion in five years.

The Reit now comprises three healthcare properties and a hotel in Indonesia worth a total of $257 million. It has just made its maiden acquisition of three Singapore properties for a total of $38.2 million, after listing on Singapore’s mainboard early last month.

The CEO of First Reit’s manager Bowsprit Capital Corporation, Ronnie Tan, said the next acquisition will be a hospital in Medan, Indonesia, for less than $30 million. And Lippo’s property development arm Lippo Karawaci is developing three hospitals that could be injected into First Reit.

Mr Tan said the Reit will also be looking at Malaysia, China and India for acquisitions, and he is currently in negotiations with three to four parties in China.

First Reit may fund acquisitions in China through debt of up to $50 million. This month, it established a $90 million credit facility with OCBC Bank. Its current gearing is 16.6 per cent but this could go up to the maximum 35 per cent to fund future acquisitions, Mr Tan said.

The three properties it is buying here - two nursing homes and a hospital - are from Pacific Healthcare. They are Pacific Healthcare Nursing Home at 6 Lengkok Bahru, Pacific Eldercare and Nursing at 21 Senja Road and Pacific Hospital Consultants at 19 Adam Road. The last of these has a redevelopment potential to increase plot ratio from 0.6 to 1.4.

Mr Tan said the trust is looking at more opportunities here, including a government site in Jalan Jurong Kechil for the possible development of a nursing/retirement home. ‘We are interested in the site and are currently looking for an operator,’ he said.

For Singapore at least, First Reit will look at acquiring more nursing homes. Mr Tan pointed out that Singapore now has about 3,200 private nursing homes.

First Reit expects to complete the purchase of the Pacific Healthcare properties in Q2 and Q3 this year. They will be leased back to Pacific Healthcare for 10 years at $2.98 million a year.

Mr Tan said that unlike other commercial properties, leases for healthcare properties are generally long at 10-15 years and so provide a stable income stream.

Separately, mainboard-listed Pacific Healthcare Holdings said it expects an exceptional gain of $2.2 million and a positive impact on cash flow of about $5.5 million from the sale to First Reit.

CEO William Chong said: ‘The arrangement will free up funds which will be utilised to further expand our business in the region. It will also allow us to focus on our key competencies.’

Source : Business Times - 26 Jan 2007

ART’s portfolio size rises to $1.2b with new regional purchases

ASCOTT Residence Trust (ART) will buy three properties - two in Japan and one in Vietnam - with a total value of $144.1 million. Chong Kee Hiong, CEO of Reit manager Ascott Residence Trust Management Ltd (ARTML), said the blended annualised property yield of the two Tokyo properties is 4.3 per cent, while the Vietnam one has an annualised property yield of 8.1 per cent. This exceeds ART’s current trading yield of about 3.6 per cent.

Mr Chong highlighted that the choice of the new acquisitions reflects ART’s ‘balanced proportion of assets in stable and emerging markets’.

He was speaking at a press briefing to announce ART’s full-year results for 2006.

For the period March 31 to Dec 31, 2006, net distributable income was $22.7 million. This was 8 per cent higher than its $21 million forecast. Distributable income per unit (DPU) for the same period was 4.82 cents, 0.19 cent above the forecast of 4.63 cents. Annualised DPU was 6.37 cents, 0.26 cent higher than the forecast 6.11 cents.

Revenue per available unit (Revpau) for Singapore and the Philippines showed double-digit growth for the year. ‘Our Vietnam properties also performed well with 8 per cent Revpau growth in 2006,’ Mr Chong said.

The latest acquisitions - including raising of stakes in two cases - increased ART’s portfolio asset size to $1.2 billion and its Japanese portfolio by more than sixfold to $140 million.

Interestingly, Revpau for China operations dropped by 7.5 per cent while Revpau for Indonesia operations fell 3.6 per cent. This was attributed to serviced apartment units in China being too big and ongoing construction work around the Indonesian property.

Mr Chong revealed that asset enhancement works on its China properties are being carried out, including those at Ascott Beijing, where 70 one-bedroom units are being created from 35 larger units. In Somerset Olympic Tower Property, Tianjin, 20 smaller two-bedroom units are being reconfigured from 10 penthouses.

By portfolio value, China accounts for 31 per cent of ART’s portfolio, followed by Singapore (24 per cent), Vietnam (14 per cent), Japan (12 per cent), the Philippines (10 per cent), Indonesia, (8 per cent), and Australia (one per cent).

ART currently has a gearing of 29.6 per cent but this could increase. ART said that the $265 million worth of acquisitions for 2007 (including those announced previously) would be funded by equity and bank debt.

‘We are in the process of getting a credit rating that would allow us to raise our debt gearing up to 60 per cent, but our target gearing is 35 to 40 per cent,’ added Mr Chong.

Source : Business Times - 25 Jan 2007

Singapore-listed First Real Estate Investment Trust (Reit) is in talks over potential acquisitions in China and may borrow up to $50 million (US$33 million) from banks to expand outside Indonesia and Singapore.

‘We are talking to three or four parties. We hope (to buy) in Shanghai because the profiling and branding would be right,’ Ronnie Tan, First Reit chief executive officer, said on Thursday.

Earlier this week, First Reit - part of the business empire of Indonesia’s Riady family - agreed to buy three assets from healthcare provider Pacific Healthcare Holdings for $38.2 million.

Mr Tan said the next likely acquisition would be a hospital in Indonesia, that would probably cost less than $30 million.

The trust, which is based on healthcare assets such as hospitals spun off by Indonesia’s Lippo Karawaci, wants to borrow to fund its expansion, raising its debt gearing level to about 35 per cent from 17 per cent.

The smallest of Singapore’s 15 listed Reits with a market capitalisation of $212 million, currently has a $90 million credit line. — REUTERS

Source : Business Times - 25 Jan 2007

Investors should consider an exposure to global property stocks that focus on the ownership model, says TODD CANTER

ASIA’S burgeoning real estate investment trust (Reit) markets are predicted to double their market capitalisation to over $100 billion by 2010 from $55 billion now, according to figures recently released. Singapore is anticipated to be a major beneficiary of this with 14 Reits listed and several more due to join the market.

Where Is The Risk Coming From?

Reits offer access to stable secure income streams from a variety of real estate asset classes and increasing liquidity as the size of the investable universe expands. Singaporean investors are becoming increasingly comfortable with an allocation to Reits in their portfolios, just as they previously embraced investment in residential units, due to the diversification benefits gained from Reit investing.

With strong sector fundamentals worldwide, Reits have generated a total return of 37 per cent for the year to last November, according to UBS Global Investors Index. Investors in mature markets, such as those in the US and Australia, have turned their attention to the global Reit market, encouraged by these returns and the desire to further mitigate risk by achieving greater diversification in their portfolios. Correlations between the regional real estate markets of the US, Europe, and Asia are low, providing an opportunity to enhance long term returns through diversifying across regions.

Singapore will inevitably follow this trend as domestic offerings lessen and their return profiles become less attractive. Given the funds under management in Singapore and the desire for products that exhibit the characteristics of a global Reit portfolio, once this offshore move gains momentum, Singapore will become an increasingly influential investor in the global Reit sector.

Around the globe, investors have many choices when it comes to putting capital into real estate. In fact, the choices seem endless, including securities versus directly held real estate, development companies versus ownership companies, and domestic versus global. Investors should take heed before making their choice as the risk-and-return trade-offs vary dramatically.

Allocation

The first question to ask is whether an allocation to real estate should be in the form of direct real estate, indirect property securities or both. Allocation models, looking at ex-post data, suggest that a mixed-asset portfolio should hold between 10 per cent and 15 per cent real estate. Within that real estate allocation, the optimal mix between direct and indirect varies based on risk and return tolerance levels. At the midpoint of risk and return the optimal mix is 60 per cent direct and 40 per cent indirect.

With securitisation trends continuing to spread around the globe, more and more investors are looking to this investment vehicle not only because of strong risk-adjusted returns but also because of added liquidity these stocks offer. Investors should be cautious, however, as not all property companies are the same. There are three basic forms of listed property company in the marketplace today: ownership companies, service providers, and pure-play development companies. The investment characteristics of these companies vary dramatically.

Ownership companies focus on owning and operating commercial real estate. The business model is quite simple, in that most of their revenue is derived from collecting rents and growing occupancy. The risk is moderate, averaging 12 per cent to 14 per cent, as measured by standard deviation. With risk falling in this range, this places commercial property stocks focusing on the ownership model in between traditional equity and bonds.

Pure-play development companies, mostly found in Asia, have business models that are dramatically riskier. In particular, development companies that act as merchant builders are at the mercy of the boom and bust cycles within the overall real estate cycle. Timing is very important to this volatile business model, resulting in significant swings in shareholder returns. Despite the added volatility, returns over the long term are actually quite low.

When comparing the risk and returns characteristics of ownership and development companies, the differences are remarkable. The average annual return for ownership companies over the time period 1990 to 2006, as proxied by the UBS Global Investors Index, was 11.6 per cent versus 4.1 per cent for the UBS Global Developers Index. As for risk, the standard deviation of the ownership companies over the same time period is 11.5 per cent versus 23.9 per cent for the development index.

Looking more closely at where this added risk is coming from within the development index, we find that Asia has very high risk, with standard deviations over 26 per cent per year over the time horizon noted. This is not surprising in that Asian property companies tend to be dominated by riskier development business models. Although this is changing due to Reit legislation being adopted by major real estate markets in the region, it will take a few more years before the balance shifts away from risky development companies to more stable ownership companies.

The next question to confront is where to invest. Most investors begin by investing domestically. With domestic commercial real estate exposure in many investors portfolios, is there a need to look abroad? Studies conducted over recent years have demonstrated that real estate markets around the globe behave quite distinctly from each other.

In fact, the relationship between the commercial real estate markets in Asia and Continental Europe is moderate at 0.42, and the relationship between Asia and the US property markets is even lower at 0.30. These low correlation numbers suggest that for an Asian investor, for example, there is considerable diversification benefits to be gained from adding international property securities to a mixed asset portfolio already consisting of Asian property.

In conclusion, not all real estate is the same. Pure-play development companies are significantly riskier relative to ownership companies. Commercial real estate markets around the globe also behave quite differently from one another so investors who add international real estate to a domestic portfolio can gain significant diversification benefits.

Despite these differences, commercial real estate fundamentals are, for the most part, strong around the globe, with the sector in the early stages of recovery. With strong fundamentals and the ability to gain significant diversification benefits, investors should consider an exposure to global property stocks that focus on the ownership model.

The writer is global strategist, LaSalle Investment Management (Securities)

Source : Business Times - 24 Jan 2007