Reit powerhouse Singapore in expansion mode again after pandemic's global US$340b blow

Singapore

SINGAPORE has established itself as a hub for real estate investment trusts (Reits) in the past two decades. Now, following the initial blow from the Covid-19 outbreak, its Reits are slowly coming back to the market with a mission - to resume their global expansion.

Gordon Tang and his wife Celine, who have one of the biggest Reit stakes in Singapore, are among those leading the charge. Suntec Real Estate Investment Trust, of which they own about a 10th, completed the acquisition of a 50 per cent holding in a London property last month, finalising a £430.6 million (S$760 million) deal that had been put on hold with the pandemic.

Lippo Malls Indonesia Retail Trust and IREIT Global, in which Chinese tycoon Tong Jinquan owns stakes of more than 4.8 per cent, are raising money to fund acquisitions in Indonesia and Spain. Keppel Reit EIT and Ascendas Reit both bought office properties in Australia in September.

Like many other industries, Reits have been hit hard during the pandemic. More than US$340 billion in value has been wiped out this year from an index tracking them globally, as employees emptied out offices in major cities and shoppers turned to e-commerce. For retail and office properties in financial centres from New York to London and Paris, the future remains grim as companies order employees to stay home and restrictions on movement are reintroduced to prevent a winter surge in cases. Only 15 per cent of office workers in New York are projected to return by the end of 2020.

But even with Covid-19 resurging in most of Europe and the US, some Reits are already betting that prime properties around the world will eventually rebound and are looking for distressed opportunities.

For trusts in Singapore, which house the most Reits in Asia excluding Japan, transactions are slowly picking up, boosted in part by lower financing costs.

Most of the S$3 billion (US$2.2 billion) in deals announced since January happened in the third quarter, DBS Group Holdings said in a note on Sept 29 titled "S-Reits: Insatiable growth appetite". It added that the market should keep improving through the rest of the year and the start of 2021. Analyst Derek Tan expects more acquisitions as the coronavirus crisis dissipates over time.

Patrick Wong, a senior analyst at Bloomberg Intelligence, said: "Pandemic-related distress sales mean some good opportunities for Asian money accessing the overseas market. More transactions are expected to come in."

Mapletree Logistics Trust is among those that have recently restarted their overseas push; it is spending S$1.09 billion for real estate in China, Malaysia and Vietnam.

Frasers Logistics & Commercial Trust, controlled by Thailand's richest person, Charoen Sirivadhanabhakdi, said in August that it will acquire properties in Australia and the UK for about S$90 million. He is looking for purchases even as his fortune has dropped more than US$9 billion this year to $10.4 billion, the Bloomberg Billionaires Index reported.

The Tangs' wealth has also suffered, with the combined value of their holdings in three Reits currently traded down US$234 million for 2020 to US$519 million - and this is despite a US$40 million rebound since the end of March, data compiled by Bloomberg showed.

In addition to the stake in Suntec Reit, the Tangs control SingHaiyi Group Ltd, a developer that has expanded to the US and Australia, and have holdings in OUE Commercial Reit, which owns properties across Singapore and Shanghai, and in Cromwell European Reit. Eagle Hospitality Trust, another of their investments, has been suspended since March as its manager defaulted on a US$341 million loan.

Frasers Logistics declined to comment for this story.

Chong Kee Hiong, chief executive officer of ARA Trust Management (Suntec) Ltd, the manager of Suntec Reit, in referring to the recent purchase of London's Nova development, said: "Notwithstanding Covid-19, we believe that London will continue to be a key global market, where good-quality assets are well sought after. Yield-accretive, well-located, high-quality assets in key cities were our acquisition criteria. The Nova Properties satisfied these requirements fully. We are confident that they are well-placed to enhance the income stability of our Reit."

Since the first Singapore listing of a trust in 2002, the market has grown exponentially. The city-state has 44 Reits and property trusts with a combined market value of S$101 billion, said a Singapore Exchange report in October.

Last year, almost 45 per cent of the world's Reit initial public offerings debuted there, surpassing places such as the US, Australia and Japan, the bourse said.

The city-state's tax incentives, regulatory support and increasing appetite from investors due to their high dividend yield - 6.8 per cent as per the Singapore Exchange report - have made it a powerhouse for Reits, Bloomberg Intelligence's Wong said.

"Singapore has attracted a number of Reits with global assets over the past few years," he said. "This creates a critical mass to further attract more similar Reits to get listed in Singapore instead of other Asian markets like Hong Kong and Japan."

Due to the scarcity of land on the island, the trusts have long turned to overseas for growth. More than 80 per cent of Singapore's Reits and property trusts have invested in assets abroad, the exchange's report showed. Australia is a key market, with the number of transactions to the country climbing 72 per cent in the first half of the year, even as their amounts remained low, said real estate consulting firm Knight Frank.

That said, it is not just about expanding abroad. The domestic market is also looking promising as Singapore Reits are poised to benefit from Chinese companies setting up their base in the island. ByteDance, the owner of video app TikTok, is moving to One Raffles Quay, owned by Suntec Reit; Alibaba Group Holding acquired a 50 per cent stake in AXA Tower in May and will be an anchor tenant of the building located in the city's financial district.

Knight Frank noted in its third-quarter research report: "The interest in the acquisition as well as the occupation of commercial properties by technology firms is anticipated to increase in the year ahead." BLOOMBERG

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