More REITs to make debut on S’pore Exchange

At least seven real estate investment trusts (REITs) that could raise around $4 billion are expected to make their debut on the Singapore Exchange this year.

Analysts expect further upside for REITs and said more of them will likely ride the momentum and issues as big as last year’s two mega-IPOs could be in the pipeline.

One of these is the Mapletree Commercial Trust to be launched sometime in late March or early April, which could raise over $1 billion and will have an asset portfolio of about $2.5 billion, said Mr George Lee, executive vice-president, Group Investment Banking at OCBC Bank.

The other big issue is that of Perennial Real Estate, which is reported to list a trust comprising principally of retail malls in China, and will potentially raise funds close to $1 billion.

The REIT IPO pipeline also includes another syariah-compliant REIT of a Middle East hospitality asset, three hospitality trusts from Singapore and Hong Kong, and an industrial trust.

“The general market is fairly conducive to IPOs this year,” said Mr Lee, adding that a bullish equity market – which could hit 3,500 to 3,600 this year – as well as better performance from last year’s IPOs could encourage more companies to list on the exchange this year.

Prospect for REITs, in particular, remain positive.

OCBC’s Mr Lee said that while the FTSI REIT sub-index has risen 149 per cent from the trough in March 2009, there is still more room for upside given that the index is still 37 per cent off the peak reached in June 2007.

Credit Suisse in its Jan 12 report said it expects positive momentum to continue in the office REIT sector and estimates rents to rise by 3 to 8 per cent in 2011 to 2012.

It added that rents here are still 50 per cent lower than those in Hong Kong – a gap that will widen further – and Singapore remains an attractive venue for businesses to set up and expand.

“Businesses have been and are still in expansion mode, mostly across the financials and related, insurance, oil and gas, services and shipping industries.

“We expect occupancy to bottom in 2011 and recover to 90 per cent in 2014, when we anticipate a potential shortage in prime CBD space, as new supply is only expected to come through in 2015,” the Credit Suisse report said.

Analysts said that tax benefits and high visibility to help raise funds are among the reasons why REITs list on the exchange.

“Listed REITs income is tax-free, subjected to certain conditions,” said Mr Robson Lee, partner Shook Lin & Bok.

He added that to qualify, REITs must distribute 90 per cent of its income to unit holders and invest portions of its net asset value on rental-yielding properties.

Properties sold to listed REITs are also not subject to stamp duties, he added.

Experts believe REITs will remain attractive to investors, especially at this time because they ware a good hedge against inflation.

“With REITs there’s no speculation, it’s a serious business of acquiring property with a steady income yield. It’s a hybrid of sorts: It’s a property and yield play. You don’t expect phenomenal upswings or downswings because rentals are locked in three years or more, so this creates a very safe, stable kind of investment,” said Shook Lin & Bok’s Mr Lee.

“There will be no lack of tenants,” he added, and investors can enjoy a steady stream of rental driven by economic recovery and Singapore’s attractive business environment.

Source : Today –  17 Jan 2011

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