By Jada A. Graves and Christopher Bechard
Gyde |
The Pacific Rim is one of the fastest-growing sectors of the international public real estate industry. With burgeoning listed real estate markets already established in many countries in the region and others on the verge of developing, this edition of International Insights highlights some of the recent news being made in the region.
APREA To Raise Industry Awareness
The Asian Public Real Estate Association (APREA) was established on June 23, 2005, to represent and raise awareness of Asia Pacific public real estate companies in the global property investment market.
Lachlan Gyde, former vice president of asset management at CapitaLand Commercial Ltd. in Singapore, will serve as APREA's executive officer. Chris Reilly, director of property, Asia, for Henderson Global Investors, will serve as APREA's interim president.
APREA's founding members include the Westfield Group, Hong Kong Land, Ascendas REIT, Mitsubishi Corp-UBS Realty, SM Prime, Ayala Land, YTL Corporation Berhad, ARA Asset Managers, Henderson Global Investors, UBS, Morgan Stanley and Macquarie Bank.
"The Asia Pacific property market is one of the fastest growing sectors in the region. To support the dynamism of the industry, APREA's focus will be to create a market based on international best-practice that will facilitate local, regional and international investment in the sector," Gyde says.
Developing strong relationships with global investment industry associations and regional real estate organizations is a key function. APREA is preparing to align itself with the European Public Real Estate Association (EPRA) and the National Association of Real Estate Investment Trusts (NAREIT) on matters of common interest.
At APREA's invitation, NAREIT President and CEO Steven A. Wechsler and EPRA CEO Nick J.M. van Ommen addressed the inaugural board meeting of APREA in June. They briefed the board on the development of both NAREIT and EPRA and the listed real estate sectors within their regions.
"APREA's development is an important step in the globalization of the listed real estate market," Wechsler says. "NAREIT is ready, willing and able to support APREA, however it may be deemed appropriate by local interests. We look forward to joining forces with EPRA and APREA to achieve important objectives worldwide."
Simon Plants Roots in Hong Kong and China
As part of Simon Property Group's (NYSE: SPG) global expansion, the retail real estate giant recently opened a regional office in Hong Kong to centralize its activities and provide a local base for future expansion in the region.
Simon gained a foothold in Asia after acquiring Chelsea Property Group in 2004. Chelsea operates as a wholly owned subsidiary of Simon and its Asian holdings include Chelsea Japan Co., Ltd., a partnership between Chelsea Property Group (40 percent), Mitsubishi Estate Co., Ltd. (30 percent) and Sojitz Corporation (30 percent). Chelsea Japan owns five of Japan's premium outlet centers including the 250,000 square foot Rinko Premium Outlets in Osaka.
The newly opened office will operate as Simon/Chelsea International Ltd. Located in the central business district of Hong Kong, the office will oversee all of Simon's activities in East and Southeast Asia. Simon views the opening of the Hong Kong office as a necessity for its continued success in Asia. Geographically located in the center of Asia, Hong Kong gives the company a central home to expand in all directions.
"This is an important step in the development of our international platform," Simon Property Group's Chief Executive Officer David Simon said in a company statement. "As the demand for high-quality retail continues to grow worldwide, we want to extend our leadership position into the most promising markets, many of which are in Asia. From Chelsea's experience in Japan, we know that there is no substitute for a local presence, and we are excited to be establishing this base of operations in Hong Kong."
Leslie Chao, president of Chelsea, says, "Chelsea has been in Asia since 1999 and there are a lot of proposals presented to us. This gets us closer to the market and better able to respond to those opportunities. We simply can't do it very effectively from the U.S."
Simon recently announced a joint venture to develop outlet centers in South Korea and will most likely announce the first project in the next couple of months which, according to Chao, is expected to open by the first half of 2007. Chao sees additional room for the company to expand its holdings in Asia, aside from those in Japan and South Korea.
"Obviously mainland China, Taiwan, Singapore, Malaysia and all the way down to Australia present possibilities," Chao says. "Much of this is exploratory, but we think there should be a lot of room to develop good retail properties."
As Portfolio went to press, Simon announced a co-operation agreement with Morgan Stanley Real Estate Funds (MSREF) and SZITIC Commercial Property Co. Ltd., retail property subsidiary of the Chinese state-owned trust and investment firm Shenzhen International Trust & Investment Co., Ltd., to develop retail shopping center projects in China. Simon and MSREF will each own 32.5 percent of the enterprise while SZITIC will own 35 percent.
Each of the 12 potential projects will be an urban, multi-level, retail destination of between 430,000 and 750,000 square feet, anchored by a Wal-Mart store. The first project, in Hangzhou, is scheduled to begin in October and be completed in spring 2007.
Hong Kong REITs to Cross Borders
In June, Hong Kong's Securities and Futures Commission (SFC) lifted restrictions on overseas REIT investments in Hong Kong. The relaxation of boundary restrictions is expected to help the country to compete with the Singapore REIT market. NAREIT, among other entities, submitted comments to the SFC in support of this move.
The SFC is an organization independent of the government that oversees the Hong Kong financial market. On June 16 it released a report that detailed the unanimous support for overseas investment. Hong Kong's revised REIT code became effective the next day.
After the SFC published proposals in March there was a one-month consultation period to provide the opportunity for comment. An SFC press release reports that all the responses received during that month (including NAREIT's) supported overseas REIT investment, as well as the initiative "to raise the gearing ratio and to consider special product features, such as payment of management fees by way of REIT units."
The gearing ratio (a measure of financial leverage, demonstrating the degree to which a firm's activities are funded by owner's funds versus creditor's funds) rose to 45 percent of gross asset value of a REIT, and the payment of management fees are now to be addressed by the SFC on a case-by-case basis.
Alexa Lam, the executive director of intermediaries and investment products for the SFC, says, "The code has been drafted in a flexible manner with an aim to accommodate new product features as the REIT market develops. Thus the SFC is prepared to consider new product features, such as different types and means of structuring management fees, so long as investors' interests are not prejudiced, there are adequate safeguards to prevent conflicts of interest, and there is proper disclosure of these features to the public."
The previous code for Hong Kong REITs outlined the necessity for investing in real estate with rental income, long-term investment, a minimum dividend payment of at least 90 percent of net income after tax and being listed on the Hong Kong Stock Exchange.
"REITs have always been intended to be low risk investment vehicles that provide stable recurrent dividend income to investors," says Chi Keung Chan, a spokesman for the SFC. "As such, the original provisions of requiring REITs to invest in income generating properties and to distribute at least 90 percent of their earnings to investors have remained unchanged."
Chan adds that the SFC is prepared to adopt a flexible approach towards these fee structures, provided that interests of investors are properly protected, the basis for calculation is fair and objective, they are prevalent practice, and the fee charging mechanism is clearly disclosed to investors.
Feeling Hong Kong on its heels, Singapore began making tentative plans to change its own regulatory structure, hoping to facilitate adding foreign assets to existing portfolios. Reported in a Chinese business newspaper, The Standard, Singapore plans to allow property trusts to nearly double their gearing ratio from the current 35 percent gap.
Chinese Developer Company Potentially Hong Kong's First REIT Listing
Property investment group Guangzhou Investment Co. made plans to raise about HK $2 billion (U.S. $257 billion) in Hong Kong or Singapore to obtain a REIT listing. The company released a press statement in June that indicated the listing was expected no earlier than July. If Hong Kong is able to secure the listing, Guangzhou would be the country's first listed REIT. The Housing Authority's Link REIT offering collapsed late last year due to legal challenges, but resolved those issues in July and is once again on track to be listed.
Previously, Guangzhou concentrated on residential development, but a lackluster Chinese property market has resulted in an expansion into the commercial market.
Guangzhou is not the only real estate company that realizes the potential of this strategy. According to China Economic Net, Jones Lang LaSalle (NYSE: JLL) intends to purchase hotels, offices and retail centers in China, then convert them into trusts listed on either the Singapore or Hong Kong stock exchange.
GE Broadens Commercial Investment In India
In June, GE Commercial Finance Real Estate invested $63 million in an IT Parks Fund designed to support various Information Technology parks in India. These parks, such as the International Tech Park in Bangalore and the Vanenburg IT Park in Hyderabad, help to sustain the growing IT industry in India and will further establish GE Commercial Finance Real Estate's presence in the Asian Pacific commercial real estate market. The company now has real estate investments of more than $4 billion in Japan, Korea, Australia, New Zealand and India.
Ascendas Pte Ltd, Asia's leading business space provider, is sponsoring the fund, called the India IT Parks Fund. Ascendas Real Estate Investment Trust is listed on the Singapore Exchange (SSE: A17U).
In a press statement concerning the acquisition, Philip Mintz, GE Commercial Finance Real Estate's president of Asia Pacific operations, said, "Our investment with Ascendas underscores GE's commitment to growing our presence in the Asian commercial real estate market."
The India IT Parks Fund has plans to develop approximately $500 million in assets over the course of seven years.
