Several MRT station ‘hot spots’ likely in the future

Several MRT station ‘hot spots’ likely in the future

 

Interest in these areas rises as Govt readies review of land use masterplan

 

By Joyce Teo

 

A MAJOR review of the town plan governing the development of land across Singapore is due this year – and keen interest centres on the use of land near MRT stations.

 

Property analysts have identified several MRT station ‘hot spots’, but they are playing down the possibility that the Government may allow more intensive development in these areas for now.

 

The five-yearly review of Singapore’s Master Plan, due around the middle of this year, will examine plot ratios – the level of intensity of development on a given site.

 

MRT stations hold interest for planners and industry watchers for the obvious reason that vast numbers of people use them every day. A new Jones Lang LaSalle report on higher plot ratios near Circle Line stations picked Paya Lebar, Buona Vista, Telok Blangah and Harbourfront as new hot spots.

 

The Master Plan shows the permissible land use and density for every parcel of land in Singapore. Property analysts say over time, plot ratios will have to increase in selected areas to cater to a growing population. What is uncertain is the timing.

 

For the purpose of planning land use and transportation in the next 40 to 50 years, the Government is using a projected population of 6.5 million, as opposed to the current population of 4.5 million.

 

Maximising the use of land around MRT stations is an obvious choice.

 

‘You can then minimise car usage, and the masses get the best accessibility,’ said Dr Chua Yang Liang, the head of research for South-east Asia at Jones Lang LaSalle. ‘From the planning perspective, it is about maximising your investment dollars and social benefits.’

 

‘Yes, the plot ratios may rise, but people should not count too much on that,’ said Knight Frank director of research and consultancy Nicholas Mak. ‘I don’t think the Government will be creating a lot of windfalls for private property owners, as there is no compelling reason to do so.’

 

Besides, some of the areas along the Circle line are fairly built-up, he said.

 

National Development Minister Mah Bow Tan said in June there was no need for an across-the-board change in plot ratios, as the land available today would be sufficient to meet needs over the next 10 to 15 years.

 

That, however, has not deterred some property owners from dreaming of a windfall.

 

Some recalled that certain sites above or near key MRT stations had their plot ratios raised after plans for the North-

 

East Line (NEL) were finalised more than 10 years ago. A prime example was the land around the Dhoby Ghaut MRT station, when it was also made the NEL interchange.

 

There is no need for significant increases in plot ratios along the Circle Line in the upcoming Master Plan because the line will not be ready until 2012, said Mr Ku Swee Yong, the director of marketing and business development at Savills Singapore.

 

Generally, the areas likely to see a significant revision in development density will be vacant state land around the Circle Line stations. Paya Lebar certainly has some. It is slated to be a regional commercial centre, so it is possible that the Government will allow a higher land density around the station, said Mr Ku.

 

It may happen at the Buona Vista stations, he said, as the area is a biotech hub.

 

Places such as Bishan and Dhoby Ghaut have been ruled out because there is little empty state land there. Also, plot ratios in Dhoby Ghaut are already very high, said Dr Chua.

 

‘So you can’t raise them further. Otherwise, you will upset the urban streetscape.’

 

Source: Straits Times

What price ‘posh’ public housing? Homing in on the issue

What price ‘posh’ public housing? Homing in on the issue

 

The latest public housing comes at a premium, but YouthInk writers wonder if the cost is worth it

 

Going beyond the basics

 

THE humble, historical background of the Housing and Development Board (HDB) differs significantly from the new and niche flats of the Design, Build and Sell Scheme (DBSS).

 

Some would argue that the latter goes against the original principles of public housing – that is, they must be affordable to all.

 

Yet these ‘original principles’ must be understood in the context in which they were formulated. A crisis of housing shortages in the 1960s left the Government with little choice.

 

Since then, public housing has evolved with new schemes and upgrading programmes which go beyond the bare basics. This is an inevitable reflection of a small nation’s social and economic progress. The DBSS flats are no exception.

 

The historical role of HDB – to provide cheap and simple housing – must be adequately met at all times. But beyond that, let market forces decide.

 

Koo Zhi Xuan, 21, is a first-year law student at the National University of Singapore (NUS)

 

 

 

It’s the people, not the space

 

FOR the average working individual in Singapore, a palatial bungalow is hardly a realistic investment.

 

The majority of our population lives in subsidised housing – arrangements which come with an extensive list of rules. The best consolation is that these restrictions at least come with an increasing structural attractiveness of HDB flats.

 

But it is a shame when practical functions of a residential community are compromised for new designs. Minimalist rain shelters do little to shield residents from torrential downpours native to Singapore.

 

Roof-top gardens intended for additional aesthetic value become every resident’s nightmare when perpetual neglect turns them into potential mosquito-breeding grounds.

 

The price premium undoubtedly comes with a degree of exclusivity. But it is possible to attain unique housing accommodation sans the hefty price tag for superficial exteriors.

 

In many other cities such as Hong Kong or New York, space is equally scarce, and clustered living is a must. But living in a shoebox is not impossible with a few great interior design ideas.

 

In the end, it’s the people you live with that make a house your home.

 

Alicia Ng, 23, is a final-year accountancy student at the Singapore Management University

 

 

 

Do in-depth demand studies

 

LATELY, the HDB demand-supply imbalance has frustrated some families, and young couples attempting to secure their desired flats.

 

But there is no short-term solution. The HDB needs to avoid a supply glut – the property plateau in 1997 saw long queues vanish after thousands of flats were built.

 

Still, there is room for improvement.

 

I live in Jurong West and my block, six years old, is only half-filled.

 

Potential buyers, apparently, are deterred by the area’s proximity to industrial estates and lack of vibrancy. Judging by the number of flats currently vacant, these conclusions were not derived prior to construction.

 

Conducting in-depth studies and surveys on demand patterns now could help prevent such a supply-demand mismatch in future.

 

Berton Lim, 20, has a place to read business administration at NUS

 

 

 

An attractive option

 

IN AUSTRALIA, the silent stigma attached to public subsidised housing is very apparent. No one will live in public housing if he can help it.

 

In contrast, Singapore’s public housing is much sought after. High-quality apartments at affordable rates allow most Singaporeans to be home owners.

 

Given the high aspirations of young Singaporeans, the HDB’s varied housing choices have become a hit with the younger generation.

 

The board is still relevant, long after its initial mandate to produce basic units which everyone can afford.

 

In fact, buyers do not get factory churnouts, because the DBSS allows Singaporeans to personalise their apartments.

 

And it is this pricier alternative which makes HDB flats an attractive option to

 

a wider spectrum of discerning home buyers.

 

Ultimately, being able to own an apartment beats renting one. Yet true to Singaporean culture, very rarely does something come ‘cheap and good’.

 

Tabitha Mok, 21, is a fourth-year medical student at the University of Western Australia

 

Source: Straits Times

ST Index falls 2% on US recession fears

ST Index falls 2% on US recession fears

 

SINGAPORE – Singapore’s benchmark Straits Times Index (STI) fell 2 per cent in early trade on Monday as poor US jobs data heightened investor fears of a possible recession in the world’s biggest economy.

 

The STI stood at 3,367.98 points at 0156 GMT, led by losses in Singapore Telecommunications, Southeast Asia’s biggest telecom, which was down by 3.1 per cent.

 

Financial stocks were also among top losers. United Overseas Bank, the republic’s second-largest lender, was down 2.1 per cent. Oversea-Chinese Banking Corp fell 1.6 per cent. – REUTERS

 

Source: Business Times

Is a coming US recession fully priced in yet?

Is a coming US recession fully priced in yet?

 

By R SIVANITHY

SENIOR CORRESPONDENT

 

BY NOW, you’d have to wonder whether an aggressive cutting of US interest rates really is the answer or, instead of inflating yet more bubbles, perhaps the best medicine for an ailing US economy is to simply let its excesses and imbalances correct themselves, lengthy though the process may be.

 

But financial markets, like funds managers, are typically short-sighted when it comes to suffering pain. So for now, the pressure is on the US Federal Reserve to cut its Fed funds rate by 50 points at the Jan 30 Open Market Committee meeting – after Friday’s rout on Wall Street, the futures market has priced in a 60 per cent probability of this occurring.

 

You’d have to wonder if this would really be of any help – given that though rates have already been lowered by 75 points in the fourth quarter, markets have not recovered.

 

You’d then have to wonder whether it’s the economy that comes first for the Fed, or the stock market. Though this is an election year, propping up both must surely be priorities because there’s nothing like those large plus signs next to the major indicators and indices to inject confidence into the population, even if it is misplaced.

 

Speaking of which, you’d have to conclude that the large plus signs next to the Straits Times Index in 2007’s final fortnight were, most probably, the result of a combination of window-dressing and the ‘buy in anticipation of window-dressing’ which we suggested would take place in this column a fortnight ago.

 

Readers might also recall that the full suggestion made back then was to buy in anticipation the large index blue chips such as SingTel, the banks, SGX and Keppel, but to quickly sell into strength because the likelihood of a rally heading into the new year was slim.

 

In other words, the best bet for the time being is to trade the market, buying selectively into dips but selling as quickly as possible into strength.

 

It goes without saying that the same strategy should apply for at least the next two weeks – at least until the days leading up to the Jan 30 FOMC meeting when another ‘buy in anticipation, sell on news or into strength’ window presents itself.

 

One main reason for this is that by now, 50-75 basis point interest-rate cuts during the first six months of 2008 must surely already be factored into the prices. Markets have for a long time been clamouring for aggressive cuts and, as stated earlier, this being a US election year, it’s difficult to see the Fed resisting. So even though there will be interest rate-led bounces before and after each FOMC, it’s likely they will not last long.

 

The second reason is an extended recoupling with Wall Street, or rather no sign of any decoupling as some analysts had predicted. Linked by program trades, all markets in this part of the world have shown an increasing – not decreasing – dependency on the US for direction over the past six months. And there’s no reason to expect any change soon.

 

Recoupling is, in fact, very much a theme in Morgan Stanley’s Critical Macro Investment Themes report dated Jan 3, written by its chief economist Richard Berner.

 

‘Although it has yet to begin, our call for a mild US recession is intact: we expect domestic demand to contract significantly in each of the next three quarters, essentially no growth in overall GDP for the year ending 3Q 2008 and earnings to contract by 5-10 per cent over that period… global recoupling may well be a dominant theme this year,’ wrote Mr Berner who, unlike most other analysts, believes the US dollar will strengthen in 2008.

 

One problem is that Wall Street may not have fully priced in the risk to earnings brought on by the coming slowdown – and other markets are still overly complacent about their own impending slowdowns and earnings forecasts.

 

Still, the volatility that is very likely to result from all this uncertainty will create plenty of trading opportunities (structured warrant issuers, whose instruments thrive in volatile markets, must be rubbing their hands in glee) for those with the stomach for heightened risk.

 

The upshot of all this is that all markets will be stuck in a trading range for a while. There is no decoupling from Wall Street yet on the horizon, even as technical factors like supports and resistances rise in importance.

 

The strong likelihood of a coming US slowdown is not yet factored in local prices – and investors should take overly bullish calls to keep buying with a healthy dose of salt.

 

Source: Business Times

US$100 oil price not very high: Opec

US$100 oil price not very high: Opec

 

Taking into account inflation, the current price is below 1980 record, cartel says

 

(PARIS) The price of US$100 for a barrel of crude oil is ‘not necessarily very high’ given the high demand of oil and higher production costs, the president of the Organization of the Petroleum Exporting Countries (Opec) said yesterday.

 

On Wednesday, the price of a barrel of crude reached US$100.09 in New York, before retreating at the close to US$99.18.

 

Algeria’s Energy Minister Chakib Khelil – who took over the rotating presidency of Opec on Jan 1 – told AFP that the current surge must be seen ‘in relation to the real price’, that is taking into account inflation.

 

The current oil price was therefore below its 1980 record of ‘between US$102 and US$110 depending on estimates’, he said.

 

Mr Khelil said that high oil demand was not only being pushed by ‘China and India but also by the Middle East whose consumption has risen immensely’.

 

‘When you take that into account, US$100 is not necessarily very high,’ he said.

 

Mr Khelil said on Saturday: ‘The surge in price will probably go on until the end of the first quarter of 2008, before stabilising during the second quarter.’

 

Speaking on the sidelines of a conference on the security of hydrocarbon pipelines in the Algerian capital, Mr Khelil said to members of the press that a second-quarter stabilisation was ‘probable’.

 

Mr Khelil said on Saturday that the steady rise in prices was due to tension in Pakistan, escalating violence in Nigeria and a fall in oil inventories in the United States.

 

In Riyadh, Saudi Oil Minister Ali al-Naimi said the record prices have been set by the market.

 

‘The market fixes the price of oil,’ Mr Naimi told reporters at an energy conference in Riyadh when he was asked to comment on the surge of oil to a record above US$100 last week.

 

Mr Naimi declined further comment on the price or what Opec would decide at its next meeting on Feb 1 in Vienna.

 

Saudi Arabia is the world’s largest oil exporter and the most influential voice in Opec.

 

High energy costs have caused concern among some members of Opec regarding the potential impact on the global economy.

 

But ministers say there is little they can do to tame the price, which is driven by political tension and speculators and not supply and demand fundamentals.

 

An official of Saudi state oil giant Saudi Aramco is on track to hit its oil production capacity target of 12 million barrels per day (bpd) in 2009.

 

The start of Aramco’s 500,000 bpd Khursaniyah oilfield was delayed a few months to the first quarter this year from December last year.

 

Other expansion projects remain on schedule, Aramco’s senior vice-president of exploration and production Amin al-Nasser said.

 

‘We are going up to 12 million bpd (oil production capacity) in 2009,’ Mr Nasser said at a presentation to an energy conference in Riyadh.

 

Aramco’s total output capacity does not include the Saudi share of capacity in the neutral zone which is between the kingdom and Kuwait.

 

Saudi Arabia is aiming for total output capacity, including the neutral zone, of 12.5 million barrels per day in 2009.

 

Saudi Arabia is spending billions on projects to meet growing world demand and maintain spare capacity of 1.5-2 million bpd of oil to deal with any unexpected outages in global supply.

 

A 250,000 bpd expansion at the Shaybah oilfield and the development of the 100,000 bpd Nuayyim field will add another 350,000 bpd of capacity by the end of 2008, Mr Nasser said.

 

The planned 1.2 million-bpd Khurais oilfield is expected to start production by mid-2009.

 

The 900,000-bpd Moneefa oilfield will start production in September 2011, three months later than Aramco’s initial schedule.

 

Aramco also aims to boost gas output capacity to 12 billion cubic feet per day (cfd) in 2011 from 9.5 billion cfd, he said. – AFP

 

Source: Business Times

High rents drive out small biz from Champs Elysees

High rents drive out small biz from Champs Elysees

 

(PARIS) The famed Champs Elysees avenue in Paris, where Charles de Gaulle celebrated liberation from the Nazis, has lost another round in its battle against an invasion by global chain stores.

 

Faced with skyrocketing rents, the last small privately-owned pharmacy on the Champs-Elysees closed last week and the post office will soon follow suit.

 

‘It’s over for small business. They don’t want us anymore,’ lamented Ludovic Aissy, who ran the decades-old Lincoln pharmacy for nearly 30 years, filling prescriptions and offering a small selection of beauty products.

 

‘The Champs-Elysees are just one big showcase for global brands,’ said Mr Aissy, who was forced to close down his business on Dec 31 after the owners withdrew his lease.

 

Mr Aissy had successfully challenged in court an attempt by the owners to double his rent, already hovering at 10,500 euros (US$22,210) per month, when they decided to end his contract altogether.

 

With the majestic Arc de Triomphe at one end and the Tuileries Gardens at the other, the Champs Elysees has fuelled much debate over its commercial development.

 

Over the past two decades, movie houses, small shops, cafes and restaurants have been replaced by a string of mega-shops like the US clothing retailer Gap and luxury brands such as Louis Vuitton.

 

Amid a growing public outcry, authorities in late 2006 turned down a request by the Swedish clothes retailer H and M to open an outlet on the Champs Elysees, touted as the most beautiful avenue in the world.

 

‘Our concern is that the Champs Elysees will become a mall, offering exactly the same shops that can be found in London or Los Angeles,’ said Francois Lebel, the mayor of Paris’ 8th district which encompasses the avenue.

 

Mr Lebel said city authorities had little leverage to prevent commercial rents from hitting the roof and driving out small businesses on the Champs Elysees.

 

‘We want to re-direct development on the Champs-Elysees, focus on everything that promotes France’s image: luxury goods, fashion, culture and leisure,’ said Mr Lebel.

 

When one of the Champs Elysees iconic venues, Le Fouquet’s restaurant, was threatened with closure, city authorities moved in and declared the establishment a historical site.

 

‘City authorities want to maintain a balance,’ said Philippe Vincent, the head of the Clipperton Development firm that conducted a major study in 2006 for the concerned local business community. ‘The Champs-Elysees is a symbolic venue that evokes something other than shopping,’ said Mr Vincent.

 

Rents on the Champs Elysees are the third-highest in the world, behind Hong Kong’s Causeway Bay and New York’s Fifth Avenue\. \– AFP

 

Source: Business Times

Hung loans threaten more write-downs

Hung loans threaten more write-downs

 

Analysts fear firms taken private may default on debt due to economic woes

 

(NEW YORK) Leveraged loan problems are threatening Wall Street banks with a fresh round of write- downs from a US$205 billion backlog of buyout debt.

 

The unsold debt piled up during the leveraged buyout (LBO) boom remains a key concern for banks, already hit by sub-prime mortgage woes which surfaced in July, investors and analysts fear. If that results in further write-downs, Wall Street could suffer deeper pain which could bring further gloom to the wider economy.

 

The sub-prime mortgage meltdown last summer caused banks to reel in lending, halting the two-year private equity deal spree. Banks got stuck with huge loan portfolios on their balance sheets that they could not sell to investors.

 

Worries about these hung loans have not gone away.

 

‘The concern remains that LBO debt could come back to bite the institutions that made these commitments,’ said David Honold, portfolio manager and financial services analyst at Turner Investment Partners in Pennsylvania.

 

‘To the extent that banks have been unable to sell debt for previously completed transactions, there is a concern for further negative earnings impact,’ Mr Honold added.

 

Banks typically sell on to investors debt they assume to facilitate deals, but that’s been a challenge since the sub-prime mortgage crisis triggered a wholesale flight from risky assets last July.

 

That means the debt of a number of deals that have closed, from the acquisition of car maker Chrysler to newspaper publisher Tribune Co, are still sitting on banks’ balance sheets.

 

Now some analysts fear that a worsening economy may cause some companies taken private to default on their debt, causing banks to further write down the value of their portfolios or even unload other debt at fire-sale prices.

 

‘It’s obvious the banks are not going to be able to get rid of this debt easily,’ said Marilyn Cohen, president and portfolio manager at Envision Capital Management in Los Angeles, where she oversees US$225 million in assets.

 

‘Deals are starting to fall through, and this is going to continue to put pressure on the banks that are holding the debt.

 

‘We’re going to see some hits, and banks will be taking more losses on this,’ she added.

 

That could mean more trouble for the credit and equity markets, which have been in turmoil since July when the sub-prime loan crisis hit.

 

‘For the wider economy, growth is slowing down with or without the leveraged loans being sold. If the loans are stuck, it portends poorly for any easing of the credit crunch,’ Ms Cohen said.

 

Banks are trying to sell institutional investors such as hedge funds about US$155 billion in unsold loan debt, according to Reuters LPC.

 

This includes about US$50 billion of loans that banks failed to sell last year during the height of the sub-prime crisis. In addition, banks are also looking to sell nearly US$50 billion in high yield bonds, according to KDP Investment advisors. Most of this loan and bond debt will be used to finance buyouts that have already been struck.

 

Banks with exposure to unsold institutional loans include Citigroup, Deutsche Bank, Goldman Sachs, Credit Suisse, Lehman Brothers, Morgan Stanley, Banc of America and JPMorgan, according to Reuters LPC.

 

Many of those banks have been grappling with exposure to another troubled debt market, that of collateralised debt obligations and similar assets which have been hammered by sub-prime related fears. In the second half of 2007, major banks announced more than US$50 billion of write-downs and losses.

 

The total amount of private equity debt stuck on banks’ balance sheets as of late summer was around US$350 billion – a figure that included debt underwriting other than leveraged loans. That figure has been whittled down to around US$200 billion, bankers say, with the closing of a few large LBOs and the cancellation of others.

 

So while around 40 percent of the debt backlog has been worked through, there is still a long way to go.

 

Investment banks and other institutional investors have to value those backlogged loans at their market price for accounting purposes, or mark-to-market. So further declines in their value could mean further write- downs for the banks.

 

One tough deal for banks to syndicate stems from Cerberus’s US$7.4 billion acquisition of Chrysler LLC from Daimler AG.

 

The deal’s underwriters in November postponed a US$4 billion loan sale for the buyout in face of weak credit market conditions and worsening news from the car sector.

 

However, it is hard to measure banks’ individual exposure to leveraged buyout debt.

 

‘Banks don’t usually tell how many hung loans they have on their portfolios. You can’t calculate it but you can make the gross assumption that trouble with write-offs will continue going forward,’ said Richard Bove, a veteran banking and brokerage analyst at Punk Ziegel & Co.

 

In addition to buyouts which have closed, there are still a number of deals yet to close, like buyouts of Myers Industries Inc and Clear Channel Communications, that have to work their way through the financing market. – Reuters

 

Source: Business Times

Uphill trek ahead as building costs keep rising

Uphill trek ahead as building costs keep rising

 

Study suggests strain on resources, no let-up this year

 

By ARTHUR SIM

 

(SINGAPORE) The construction boom here is stretching resources, as costs of building materials look set to keep climbing through 2008.

 

Already, building costs are almost on par with Hong Kong, double that of Beijing, and just 30 per cent below New York.

 

And according to a report by construction cost consultancy Rider Levett Bucknall (RLB), Singapore prices jumped 12 percentage points to 15 per cent in 2007.

 

RLB sees the global tender price index (TPI) going up a further 15 per cent this year.

 

RLB managing partner Winston Hauw said: ‘It will be a very challenging year for the construction market in 2008, given the high demand on construction resources from existing and new development commitments this year.’

 

RLB’s international tender price matrix is based on the pricing of standard commercial and residential building models for the various cities.

 

For Hong Kong, Beijing and London, the TPI rose by one percentage point, while in New York and Dubai, it fell 4.5 and 5 percentage points in 2007 respectively.

 

In its analysis of building costs worldwide – which is based on similar construction-related costs – Singapore ranks below these cities, except for Beijing.

 

Building costs for premium office buildings in London and New York start at $5,916 and $2,857 per square metre respectively. In Asia, the costs for premium office buildings in Dubai, Hong Kong and Singapore start at $2,810, $2,368 and $2,150 psm respectively.

 

While some factors contributing to building costs are universal, Mr Hauw said construction demand in Singapore has doubled from about $11 billion two years ago, putting a strain not just on material costs, but on labour, equipment and management staff costs as well.

 

Although the building costs in Singapore are just a fraction below Hong Kong’s, rental returns for landlords are higher.

 

According to the latest data by DTZ Debenham Tie Leung, Grade A office base rents in Hong Kong are $20.67 psf per month, compared to $12.15 psf per month here.

 

In both cities, vacancy for Grade A office space is 2.8-2.9 per cent.

 

DTZ executive director Ong Choon Fah said building costs and rental returns alone do not determine the investment potential of a city. ‘It also has to do with how these investors choose to allocate their funds,’ Ms Ong said. And with regard to Hong Kong, she added: ‘It is still very much a China play.’

 

In a recent report by CB Richard Ellis (CBRE), estimated initial yields (gross) for the prime office sector in Beijing, Hong Kong and Singapore were 7-9 per cent, 4.5 per cent and 4.3 per cent respectively.

 

For the luxury residential sector, yields were 6-8 per cent, 3.5 per cent and 2.6 per cent respectively.

 

CBRE executive director for research Li Hiaw Ho said building costs may have some impact when calculating overall yields, but he believes this is minimal.

 

Instead, in Singapore, as well as Hong Kong, land costs are a much bigger factor. He also noted that while Singapore’s land costs are high, Hong Kong’s are higher.

 

On the lower yields here, Mr Li said: ‘Lower yields can also mean that there are lower risks appttached to investing here.’

 

Knight Frank director of research and consultancy Nicholas Mak believes that for potential developers, building cost ranks below land cost, financing cost, and investor rate of return.

 

‘When advising clients during the feasibility study stage, we find they are more concerned with pinning down land costs,’ he said.

 

With respect to building costs, Mr Mak said: ‘In a buoyant market, developers are more likely to pass on higher building costs to the buyer, while in a quiet market, the developers may have to absorb this.

 

Source: Business Times

All may gain if Goodman bags JTC Reit

All may gain if Goodman bags JTC Reit

 

By KALPANA RASHIWALA

 

AUSTRALIA‘S Goodman group is reportedly expected to clinch the job of being the manager of a proposed real estate investment trust that will hold about S$1.6 billion of industrial properties to be divested by JTC Corp. No official announcements have been made so far.

 

Market watchers expect Goodman to exit an existing business in Singapore – its 40 per cent stake in Ascendas-MGM Funds Management, the manager of Ascendas Real Estate Investment Trust (A-Reit). JTC’s subsidiary Ascendas holds the remaining 60 per cent.

 

Some industry players suggest that giving up its stake in the A-Reit manager was probably a condition JTC laid down for Goodman if it wants to manage the new Reit.

 

That makes sense. For one, it removes conflict of interest. Goodman can’t be having an interest in two Singapore industrial Reit managers who may compete for the same assets and tenants.

 

For Goodman, instead of having to divide its energies between managing two Reits in Singapore, it may be better to focus on just one Reit.

 

Another compelling reason for it to choose to manage JTC’s impending Reit and give up its stake in A-Reit’s manager is that Goodman can have full control of the JTC Reit manager, unlike A-Reit, whose Reit management company it controls jointly with JTC subsidiary Ascendas.

 

JTC may still keep a stake in the impending Reit – perhaps to assuage concerns of some of its tenants that the statutory board’s properties divestment will be accompanied by an increase in their occupation costs. But Goodman will clearly be in the driver’s seat for this new Reit.

 

Market watchers also expect Goodman to be a sponsor for the new trust, holding a stake of at least 20-30 per cent, in addition to having full ownership of the Reit manager.

 

That gives Goodman leeway to expand the new Reit as it deems best. The new Reit can ride on the Goodman group’s substantial clout – the group owns, develops and manages industrial and business space globally and has total assets of A$37 billion (S$46.5 billion) with over 700 properties under management. In Asia too, Goodman has a substantial presence in China, Hong Kong and Japan.

 

Goodman’s new Singapore Reit will be able to mine Goodman’s huge customer base for tenants for its existing and future properties as they expand across Asia. Goodman could also open the door for the Reit to acquire assets in the region.

 

These are some of the reasons why it makes sense for Goodman to choose sole control of the new Reit manager over continuing joint control of the A-Reit manager.

 

Its partner in the A-Reit manager, Ascendas, too may feel freer to grow the trust after Goodman leaves.

 

Since its listing on the Singapore Exchange in November 2002, A-Reit has focused exclusively on Singapore. No doubt its asset size has grown impressively – from an initial portfolio of eight properties worth S$607 million at the time of listing to 78 properties totalling S$3.3 billion as at Sept 30, 2007. But eventually, relying exclusively on the home market limits A-Reit’s expansion prospects.

 

Industry insiders say that A-Reit has never expanded overseas because of an understanding between Ascendas and Macquarie-Goodman (Macquarie and Goodman parted ways about 18 months ago although a name change to just ‘Goodman’ was effected only last year) that A-Reit will not venture overseas, where both Goodman and, at the time, Macquarie, have considerable interests. In a nutshell, it was to avoid conflict among the three parties overseas. Ascendas may have agreed to such conditions because back then, it needed to ride on Macquarie-Goodman’s brand name in industrial property funds management. Don’t forget, back in late 2002 when A-Reit was floated, Reits were still relatively novel here.

 

But five years on, Ascendas has gained considerable property fund management expertise, not only managing A-Reit but setting up property funds holding Indian properties, including the Ascendas India Trust (a-i Trust) which was last year floated as Singapore’s first listed Indian property trust.

 

Overseas markets

 

Ascendas also has significant presence in China and South Korea and is fast expanding in Vietnam. Ascendas may well decide to float separate Reits holding assets in various respective overseas markets. Or it may decide to park assets in some overseas markets in A-Reit. This will be an internal strategy Ascendas will have to sort out. But at least A-Reit will no longer be fettered from overseas expansion.

 

So if Goodman and Ascendas decide to part ways in the A-Reit manager, that may be a good thing, for both parties, as well as for A-Reit itself.

 

In July last year, JTC said it had shortlisted seven candidates to manage the Reit that will hold assets to be divested by the stat board. JTC is understood to have narrowed down on the final few candidates based partly on their track records and of these, Goodman probably offered the highest value for the assets that JTC will sell to the Reit.

 

If JTC does eventually pick Goodman to manage the new Reit, it should help smoothen ongoing negotiations on the price Goodman will receive for selling its 40 per cent stake in A-Reit’s manager.

 

Source: Business  Times