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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.
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