Analysing REITS

[r0n]

Is it really true that Reits are into co-investing properties development. So far, this is the first time I heard about it. My understanding is they can buy a completed property and then rent it out or asset enhancement but definitely not into property development. Could you let us know which Reits are into co-investing properties development? Seem shocking news.

Real shocking ! But which reit did that or is doing that ?

Co-investing in property development is not shocking. CMT, capitaland and capitamall Asia co-develop West Gate mall.

In fact, some REITs are strong enough to build a new property from scratch.

MINT is building one for Hewlett Packard. It is currently building a data centre for Equinix.

CACHE is co-developing with CWT on a huge one for DHL.

These properties are usually already pre-leased with annual rental escalation built in.

Suntec REIT also building an office in Australia.

And the list goes on.....

Property development (current) by Singapore REITS:

Mapletree Industrial Trust
Equinix

Cache Logistics Trust
DHL Supply Chain Advanced Regional Center

CapitaCommercial Trust
CapitaGreen [40% Interest, Capitaland 50%, Mitsuibishi Estate Asia 10% ]

CapitaMall Trust
Westgate [30% Interest, CapitaMalls Asia 50%, Capitaland 20%]

Far East Hospitality Trust
Sentosa Hotel [30% Interest, Far East Organisation Centre 70%]

This is all that I could find which are specifically defined by the announcement as greenfield projects in the past years. Ascendas REIT have many greenfield projects but I am unable to find a current example.

There are also plenty of AEI that involves redeveloping the plot of land to take advantage of zoning to increase the GFA but they do not reference the 10% limit on greenfield projects, probably because they own the building before demolishing/redeveloping. [e.g. AIMSAMPCapital REIT - 20 Gul Way, Mapletree Logistics - Benoi Hub ]

An interesting example is the 177 Pacific Highway purchase by Suntec REIT which they don't consider it as a greenfield project, probably because the vendor takes the risk of any complications and delays in the project.

[specuvestor]

^^Nice summary guys. I have totally forgotten about the 10% thingy even though I had questioned CMT strategy around 7 years ago on this.

The capital required for FEHT is around $133m... are the quantum for the other projects huge as well ie close to 10% limit? Roughly how long is the pre-lease for these kind of "project financing"?

I am particularly keen on how they are going to bend the rules again with the stapled structure. IIRC there is no such constraint on the dormant BT.

Sorry, my english no good. Do you mean City Dev dumped Suntec REIT ?

If my memory didn't failed me, it was Suntec REIT who dumped City Dev !
They were negotiating a huge package deal back then. Suntec REIT were suppose to acquired many City Dev's buildings ( like IBM Building, Queenstown shopping centre etc. )
Suntec pulled out at the very last minutes, stating that City Dev could not fulfill some of the important clauses in the contract, hence they drop the whole thing altogether.

Just need to google "Ho Ching REIT City Dev" IIRC City Dev was thinking of selling or doing a REIT themselves. Nobody dumped nobody when Mdm Ho explicitly wagged her fingers

http://www.stproperty.sg/articles-proper...rs/a/59790

[Layman A]

Ok, now I understand now.
The Suntec and CDL $788 millions deal was negotiated in two occasions, first in 2007 and later in 2012 when Mdm Ho explicitly wagged her fingers against REIT's manager practice.

I was referring to the one in 2007, my bad
http://www.asiabuilders.com.sg/asiabuild...code=conMY

^^Nice summary guys. I have totally forgotten about the 10% thingy even though I had questioned CMT strategy around 7 years ago on this.

The capital required for FEHT is around $133m... are the quantum for the other projects huge as well ie close to 10% limit? Roughly how long is the pre-lease for these kind of "project financing"?

I am particularly keen on how they are going to bend the rules again with the stapled structure. IIRC there is no such constraint on the dormant BT.

Sorry, my english no good. Do you mean City Dev dumped Suntec REIT ?

If my memory didn't failed me, it was Suntec REIT who dumped City Dev !
They were negotiating a huge package deal back then. Suntec REIT were suppose to acquired many City Dev's buildings ( like IBM Building, Queenstown shopping centre etc. )
Suntec pulled out at the very last minutes, stating that City Dev could not fulfill some of the important clauses in the contract, hence they drop the whole thing altogether.

Just need to google "Ho Ching REIT City Dev" IIRC City Dev was thinking of selling or doing a REIT themselves. Nobody dumped nobody when Mdm Ho explicitly wagged her fingers

http://www.stproperty.sg/articles-proper...rs/a/59790

[Layman A]

Nick, thanks for the clarification.

I was mistaken by this report which just mentioned Frasers Centrepoint.
http://news.asiaone.com/News/Latest+News...00252.html

Do note that the logo of FCT and FCL is almost the same, which is very confusing !

BTW, I know FCT is also currently re-building the East Point mall for our NTUC bosses.

Eastpoint is owned by NTUC Income. The property is managed (not owned) by FCL. FCT has no link to Eastpoint whatsoever.

[roxhockey]

^^ My 2cents on the above

Firstly I have stated before that conceptually REITs are long term viable products that disintermediate between retail yield alternatives and property companies' return requirements, and not just another financial engineering product.

Since the days of first REIT CMT, the idea like Mohican pointed out is to provide a consistent cashflow with predictable yield. Since then of course market expectations forced more asset enhancements and structured REIT to come out, most infamous being Suntec, which Ho Ching spoke against and hence City Dev dropped the REIT back then.

But bankers and corporates started to understand the ATM nature of this disintermediation. Then as cashflow becomes more unpredictable it is packaged as business trust and then stapled security. It has become increasingly complex. Tycoons in recent years were the most ardent fans of using these ATMs

Now you have REIT co-investing in a development with uncertain cashflows, instead of the usual buying existing assets from the sponsors with predictable cashflow albeit high RNAV. The risk profile is changing. Sponsors are no longer using them just for pure ATM but also as "insurance" ie risk sharing.

Tycoons are playing with the rules with more and more patterns coming out. They are starting with 30% now... if market is receptive and regulators are nonchalent this % I suspect will be creeping up. All's well until a development flops and we see who is naked, much like the skeptical gloom overhanging the Business Trusts nowadays.

http://www.valuebuddies.com/thread-2256-...l#pid94995

Very good post! It's inevitable that with the boom in SREITs we will see vendors try and subtlety shift the risk profile of these assets while trying to price off the safer comps. All works well in boom times but when the downturn comes it's these lower quality assets that will be the first to need a recap.

[Ray168]

Proposed MAS changes to REIT regulations include higher borrowing limits


The proposed changes include higher borrowing limits and tougher disclosure standards, MAS said in a consultation paper released on Thursday (Oct 9).

SINGAPORE: The Monetary Authority of Singapore (MAS) has proposed changes to the regulatory framework for real estate investment trusts (REITs), including a relaxation of borrowing limits for these property investment vehicles.

Other proposed changes include tougher disclosure standards and letting REITs get more involved in development projects, MAS said in a consultation paper released on Thursday (Oct 9).

"The proposals will enhance the transparency and corporate governance of the REIT market and improve its attractiveness to issuers and investors," MAS said.

As of Sep 30, there were 33 Singapore REITs with total market capitalisation of S$61 billion.

MAS proposed increasing the leverage, or borrowing, limit imposed on unrated REITs to 45 per cent of total assets from the current 35 per cent. For REITs with credit rating, the present 60 per cent cap on leverage will be removed.

Meanwhile, the development limit for a REIT will be raised to 25 per cent of its deposited property, up from 10 per cent. These proposed changes will provide the REIT with greater operational flexibility to rejuvenate the REIT's maturing portfolio of assets, MAS said.

In terms of disclosure requirements, MAS proposed REITs be made to provide information such as the amount of income support payments received as well as the remuneration policy for directors and executive officers.

Those wishing to comment on MAS's consultation paper on REITs should do so by Nov 10.

- CNA/xk
MAS propose changes in REITs

[specuvestor]

Talk about shooting own foot... but what a coincidence while we were discussing this 10% thingy

[LLS]

"MAS proposed increasing the leverage, or borrowing, limit imposed on unrated REITs to 45 per cent of total assets from the current 35 per cent. For REITs with credit rating, the present 60 per cent cap on leverage will be removed.

Meanwhile, the development limit for a REIT will be raised to 25 per cent of its deposited property, up from 10 per cent. These proposed changes will provide the REIT with greater operational flexibility to rejuvenate the REIT's maturing portfolio of assets, MAS said."


If it aint broken, don't change it... MAS is increasing the risk for retail investors!

[Greenrookie]

Those bigger and stronger Reits with good rating, I doubt they will leverage upwards, most of them are 30-40 % geared even though the limit is 60%.

But the weaker Reits, I am not sure how they will behave. Now Reits not only is a recycler of capital but also can share the risk of development...

why are they doing this? I don't think they are thinking about investors' risk appetite when these 2 measures are concerned.

[Temperament]

Singapore going the USA way for Reits (can be the same as CDO securities?) No leverage limit for some? Short term going to be very good. Long term ???