According
to Anthony Ryan, the head and managing director of JP Morgan’s real
estate investment banking, the structure of the real estate
investment trust (REIT) still has relevance in the rest of Asia,
particularly in Singapore.
Mister
Ryan expects that over the next two years, about two to five REITs
will be listed in Singapore. However, he said that the market might
not be able to notice the IPOs (initial public offerings) level that
they had before.
Speaking
yesterday at a forum that CapitaLand, the property developer in
Singapore, has organised, Mr. Ryan explains that in the future, some
kind of REITs will not be relevant anymore but the entire REIT market
can still be expected to grow. He also claims that in the present
market recovery, the investors remain polarised on their preference
for REIT.
Based
on the data from JP Morgan, compared to other kinds of REITs, huge
cap domestic REITs (REITs with free float market capitalisation of
over US$400 million and a predominantly domestic focus), like
CapitaCommercial Trust and the CapitaMall Trust of CapitaLand, as
well as the flourishing REITs market (China REITs and pure-play India
and REITs with 30 percent or less development exposure) are trading
at a lesser discount to their net asset values.
Mister
Ryan said that during the sub-prime crisis, the more liquid and large
cap REITs have witnessed more investor interest compared to their
smaller peers.
On
the other hand, the ‘other’ REITs have been punished for their
non-strategic diversification, lack of sponsorship, for doing too
much development, liquidity or size, or for their asset class.
The
existing business needs to be restructured as these REITs are
becoming irrelevant to investors. Mister Ryan claims that
restructuring is possible through asset injection or by undertaking
asset sales to become more geographically diverse and reduce their
leverage.
During
the different stages of the market cycle, Mr. Ryan has presented a JP
Morgan analysis that tracks the performance of the Singapore property
(S-Prop) index, S-REIT index, as well as the standard Straits Times
Index (STI). The findings present that compared to the amount of the
STI during the sub-prime crisis from July 2007 to December 2008,
S-Prop and S-REIT indices have fallen by a great amount. Over the
period, the S-Prop index has declined by 49 percent while the S-REIT
index has declined by 43 percent. However, over the same time, the
STI has only fallen by a smaller 39 percent.
Nevertheless,
both the S-Prop and S-REIT has rebounded faster that the STI during
the recovery period from 01 January 2009 to 28 August 2009. The
S-Prop index has gained 63 percent while the S-REIT index has gained
64 percent. By contrast, the STI has only increased by a smaller 48
percent.
However,
the Asian REIT markets are still expected to continue to grow despite
the problems that they are facing.