Asian REIT markets strengthened in the second half of 2010 as acquisition activity rose and interest in IPO activity intensified, according to CB Richard Ellis’ REITs Around Asia report on 2H 2010.
Acquisitions by REITs in the second half totaled US$5.6 billion, bringing total acquisitions for the full year 2010 to around US$11 billion. The total market capitalisation of Asian REITs rose by 46.8 per cent year- on- year to US$95 billion for the whole year, with the second half witnessing the addition of eight new REITs and some stellar price growth.
During the second half, REITs become an important real estate capital raising channel as investment confidence returned after most REITs completed the necessary refinancing or recapitalisation exercises to meet their loan obligations. Improvements in the underlying commercial real estate market also helped attract capital into the REIT market. 14 REITs were newly listed on Asian stock markets in 2010, bringing the total number of REITs in Asia to 123 at year end.
Southeast Asia witnessed a series of large REIT IPOs. The Sunway REIT and CapitaMalls Malaysia Trust, which both listed in the second half, were the largest REITs in Malaysia by market capitalisation as of the end of 2010, while Mapletree Industrial Trust and Sabana Shari’ah Compliant Industrial REIT were two of the largest IPOs to take place on the Singapore stock market during the period. These four REITs collectively raised US$2.2 billion of fresh capital from the equity market following their listing. Thailand was another active market during the second half, witnessing the listing of three new small property funds. Japan saw no new listings in the second half as the market focused on the launch of the Bank of Japan’s (BOJ) JPY 50 billion (US$616 million) REIT purchase programme.
Acquisitions for the full year 2010 totaled US$11 billion, marking a new annual record and a figure three times higher than that which was recorded in 2009. Activity in Singapore and Japan accounted for 57 per cent and 33 per cent of the total acquisition volume respectively. The period was also noteworthy for a number of Asian REITs beginning to invest in assets across Asia. Singapore-listed Ascott REIT and Malaysia-listed Al-Aqar KPJ REIT expanded to the Pacific and Europe respectively as they looked to diversify their portfolios and income sources. J-REIT acquisition activity was largely confined to Tokyo although several large J-REITs began to show an interest in other Asian markets. After a quiet few years the Hong Kong REIT market showed signs of activity as discussions began over the launch of the first RMB-denominated REIT containing prime commercial real estate assets in Beijing owned by Cheung Kong. Should its listing go ahead in 2011, the proposed REIT would mark the first listing of RMB-denominated equity outside mainland China.
Weighted dividend yields continued to compress in the second half of 2010, thanks to the strong stock price rally. The weighted dividend yield for Asian REITs contracted further to 5.36 per cent as of the end of 2010, from 6.86 per cent recorded in mid-2010 and 9.62 per cent as of the end of 2008. As investors required a much higher dividend yield during the downturn, REITs were reluctant to add new assets to their portfolio as any new acquisitions would have had a diluting effect on dividend yield. “As dividend yield has been compressed to the level close to yields for physical assets, REITs are expected to turn more active in sourcing new investment objects,” said Danny Mohr, Executive Director, International Valuation, Asia for CB Richard Ellis.
Foreign investors are in the midst of rallying capital for investment in Asia, which is seeing stronger growth compared to the rest of the world. REITs will be viable investment objects for those wishing to gain exposure in Asian real estate without the need to hold the physical assets. This is expected to attract capital inflow into the REIT sector and consequently REITs are likely to be in a stronger position to acquire new assets for portfolio enhancement in 2011.
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