Reits take hold in the Asia-Pacific

Reits take hold in the Asia-Pacific
April 8th, 2007
REIT structures now exist in all of the Asia-Pacific markets in which we believe institutional investors should consider core property acquisitions. Australia created the Listed Property Trust (LPT) structure in 1971, Japan introduced the J-Reit structure in 2001 and since then South Korea, Singapore, Taiwan and Hong Kong have all adopted their own versions of the Reit - real estate investment trust - structure.

We believe that Reit structures contribute to local property markets in a number of ways, including expanding capital sources, increasing liquidity in the market and adding transparency to the industry through required public disclosure of information and analysts’ increasing focus on the property sector.

The existence of Reits also gives investors another method for adding property to their portfolios, particularly retail investors who generally have fewer practical options for gaining exposure to real estate than institutions. While certain large US Reits are operating globally, Asia-Pacific Reits are also becoming active outside of their domestic markets in some cases where they are not restricted by legislation.

Growth potential

Japan’s experience is one that reveals the potential for explosive growth in the Reit market. The first J-Reits launched public offerings of shares in 2001 after regulations creating the structure were enacted the previous year. From two J-Reits at the end of 2001, the sector has grown in just over five years to include a total of 41 J-Reits with an aggregate equity market capitalisation of 5.9 trillion yen (S$75 billion) as of February.

Based on average debt levels and appraised values of portfolios, it is estimated that J-Reits owned approximately 6.3 trillion yen of property throughout Japan in March, across all market sectors, including hotels.

The Singapore Reit (S-Reit) market has also grown rapidly, reaching a size of 13 S-Reits and an equity market capitalisation of more than $14 billion in the four years to August 2006.

The number of S-Reits is expected to increase to at least 15 by end of 2007, including the MacarthurCook Industrial Reit which was announced in March this year.

The first S-Reit, CapitaMall Trust, conducted its initial public offering in a time of economic uncertainty in July 2002. It was well received by investors familiar with the quality retail properties it owned, and effectively gave a boost to the Singapore property market.

Reits listed in Hong Kong began with The Link Reit in the fourth quarter of 2005, the largest Reit IPO in the world when it issued shares worth US$2.8 billion. Hong Kong Reits now include GZI Reit, with properties in mainland China. Two other IPOs, one in the fourth quarter of 2005 and another in the second quarter of 2006, brought the Hong Kong Reit market capitalisation to HK$49 billion (S$9.5 billion) at the end of June 2006.

Taiwan launched its first Reit with an IPO of Fubon No. 1 Reit in March 2005. As of April 2006, another three Reits had been launched.

South Korea had an earlier start to its Reit market, but the sector was under-utilised due to regulatory hurdles that hindered the formation and operation of Reits. The authorities subsequently amended the regulations and also introduced a new structure in 2004 called the Real Estate Trust Fund (RETF).

As the various Reit markets continue to grow, they provide an increasingly important source of capital to the real estate sector in the Asia-Pacific region. Rising cross-border investment by Reits also enhances the flow of capital around the region’s real estate markets. Reits are already involved in an increasing share of property transactions in Asia-Pacific markets.

The Business Times