SINGAPORE-listed Sinarmas Land is looking to unlock the value of its investment properties in Indonesia by spinning them into a real estate investment trust (Reit) but has not decided on whether to list in Singapore or Jakarta, with tax benefits on offer likely to be a key determinant.
"The unlocking of recurring income assets into a Reit is something which we will definitely look into in the next 12 to 18 months," executive director Robin Ng told The Business Times.
"Whether it is going to happen in Indonesia and Singapore, we do have the vision to make it happen. However, we are unable to commit to a certain timeframe as this will be largely driven by market conditions."
About S$70 million of Sinarmas Land's annual revenue is derived from recurring income-generating properties in Indonesia. Some of these office and retail properties will be injected into the Reit while some others could be granted under an option for the Reit to acquire in the future, according to Mr Ng.
"In the past, we've looked at a potential listing in Singapore. But now, Jakarta has a possibility of growing its Reit listing business, so we will definitely compare the pros and cons of the two markets," he added. "It all depends on how efficient the Indonesian government rolls out its double-taxation relaxation rules."
All of Sinarmas Land's properties and assets, including investment properties, are held at historical cost on its balance sheet. "Any restructuring of our portfolio to bring it into a Reit will definitely enhance share-holders' value through the mark-to-market valuation of these assets that we own," Mr Ng said.
Like its peers in Indonesia, Sinarmas Land has been holding back from a Reit listing of its Indonesian assets in Jakarta given the hefty capital gains tax that it would have otherwise incurred for revaluing its assets. Many Indonesian firms have not revised the value of their assets for years to avoid paying a 10 per cent tax on the incremental value. Dividends paid to Reits' investors by special purpose companies holding the underlying assets were also taxable.
But this is changing with recent policy changes announced by the Indonesian government to spur the growth of a Reit market there. Indonesia had in October announced incentives aimed at encouraging firms to revalue their fixed assets and set up Reits by scrapping double taxation that may apply to such businesses.
Mr Ng said that the group is still awaiting greater clarity on the implementation guidelines from the Indonesian government. If the new structure works out well, the group will soon be talking to tax advisers and bankers on how to restructure its assets.
Its Indonesian portfolio of recurring-income assets comprises six offices (Sinar Mas Land Plaza in Jakarta, Surabaya and Medan, Green Office Park in integrated development BSD City, Wisma BCA and Wisma Eka Jiwa), 14 ITC brand retail malls and The Breeze mall in BSD City, Le Grandeur hotels in Jakarta Balikpapan, golf resorts and resort parks.
Even though commercial Reits in Singapore are mainly trading at a discount to revalued net asset value, Mr Ng said that the group has not ruled out listing the Reit in Singapore yet. But news of the new Indonesian tax incentives have already prompted some property developers to express interest in issuing Reits in Indonesia. Lippo Group CEO James Riady told the press last month that Lippo Group plans to transfer its two Reits - Lippo Malls Indonesia Retail Trust and First Reit - worth a combined 35 trillion rupiah (S$3.6 billion) from Singapore to Indonesia.
Sinarmas Land, part of Indonesia's Widjaja family-founded conglomerate Sinar Mas, still derives its revenue predominantly from Indonesia.
In August, it turned away from becoming a strategic investor in the stalled listing of China's Kailong Reit in Singapore, an investment that would have offered the group immediate exposure to mainly business space assets in Shanghai and provide further income diversification. Kailong Reit's sponsor KaiLong Holdings, part of a Shanghai-based private equity firm, was reportedly not making much headway in finding interest from other investors in the Reit.
"We have dropped out of that investment opportunity. As of now, there has not been a re-opening of discussions with Kailong Reit," Mr Ng said. Other than some 10 per cent of units left to sell in its Shenyang residential project, the group has no landbank left in China but hopes to enhance its presence there by focusing on residential sites in first-tier cities.
"We do not rule out M&A opportunities in China by acquiring a direct stake in a company or Reit because that gives us immediate ownership of a portfolio of properties," he added.
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