CapitaLand has been something of a market leader following its formation from the merger of DBS Land and Pidemco in 2000. In 2002, it listed the first REIT, CapitaLand Mall Trust, which is now part of CapitaLand Integrated Commercial Trust. It was also CapitaLand which made a success of its China foray. Of course, there are strategies and focuses that cannot be copied, such as the Raffles City brand name.
The next listed real estate investment manager (REIM) is likely to be ARA Asset Management, which was privatised in 2017. Warburg Pincus holds a 48.7% stake in ARA and analysts expect to see the timetable for an IPO next year when Warburg’s five-year holding period is up.
Straits Trading Company is the best proxy to ARA, according to DBS Group Research. In a report dated Feb 22, DBS suggests that ARA, in which Straits Trading holds a 22% stake, could be worth $6.4 billion in the most bullish scenario. At worst, ARA could be valued at $5 billion.
Just last year, Straits Trading acquired a 1.1% stake in ARA for $30.3 million from AVIC Trust which divested its 20% stake. That would value ARA at around $2.7 billion.
ARA is an asset manager which gets its revenue from fee income from the management of its funds and REITs. Since being privatised in 2017, ARA has acquired stakes in Kenedix, a Japan-based asset manager; Cromwell Property Group, an Australian based asset manager; and LOGOS, an Australian and Singapore-based asset manager that develops logistics assets in Asia that are held through its funds. LOGOS is a sponsor of ARA LOGOS Logistics Trust.
The investment in LOGOS provided ARA with AUM US$10.9 billion ($14.7 billion). ARA also invested in Venn Partners, which added more than GBP5 billion ($9.2 billion) to its AUM. The largest REIT ARA manages is Suntec REIT, in which ARA and Straits Trading together own 18%. Altogether, ARA says its gross AUMs including those of the group and its associates amount to $119 billion.
Straits Trading said on March 5 that its share of profits from ARA was affected by one-off restructuring costs and mark-to-market losses. “The group’s share of profit for the year was affected by transaction costs as a result of execution of ARA’s inorganic growth strategies, certain restructuring costs, and mark-to-market losses on fair valuation of financial assets, which are attributable to the Covid-19 pandemic,” says Straits Trading in its financial statement.
To be sure, Straits Trading’s share of profits from associates and joint ventures fell by 83% y-o-y in 2HFY2020 ended Dec 31, 2020, to $3.6 million, and by 80% y-o-y in FY2020 to $8.7 million.
Interestingly, Straits Trading said its subsidiary, Straits Real Estate divested nine freehold apartment blocks in Greater Tokyo for JPY18.9 billion ($244.2 million) at an attractive IRR (internal rate of return) of 18% despite subdued market sentiments. Straits Trading is trading at $2.82, a discount of 25% to its NAV of $3.78. The company has $17.5 million of goodwill on its balance sheet.
The best of the rest
The business model of Mapletree Investments as a developer, owner of investment properties, and asset manager to REITs and funds defines it as an unlisted local REIM with a global footprint. Whether it lists its asset management arm remains to be seen.
Elsewhere, Singapore-listed developers all trade at hefty discounts to NAV (see table). This includes Bukit Sembawang Estates which uses historical cost accounting — implying that is NAV could be a lot higher if it adopted fair value. Bukit Sembawang is a traditional developer with a focus on residential property and appears to have no aspirations of turning into an asset manager.
Frasers Property (FPL) has attempted a business model similar to CapitaLand’s. It even acquired Australand, which once belonged to CapitaLand. However, due to the stresses and strains of acquisitions and the Covid-19 pandemic, FPL is reflating via a dilutive rights issue to beef up its equity and provide it with much needed financial flexibility. FPL has an asset management arm, with AUM of more than $40 billion in its Singapore-listed REITs alone.
Then there is Hongkong Land which trades a hefty 60% discount to book. Its immediate parent Jardine Strategic Holdings is in the process of being privatised by parent Jardine Matheson Holdings. Hongkong Land does not appear to be a REIM, although, with an investment portfolio of US$30 billion, it could easily create a REIT for its investment properties in Singapore and Hong Kong.
Of course, UOL Group, which is in the FTSE EPRA NAREIT Developed Index, has a sizeable portfolio of investment properties. Most of its commercial properties are held in United Industrial Corp, while the hotels are held under Pan Pacific Hotels Group which was privatised. UOL’s next restructure is likely to be the privatisation of UIC, probably as and when it comes to an agreement with JG Summit Holdings on pricing.
In the meantime, UOL has plans to redevelop Faber House and undertake asset enhancement initiatives at Odeon Towers.
SPH Residence Trust on the way?
Singapore Press Holdings, usually referred to as SPH — where the P could easily stand for property — is the asset manager and sponsor to SPH REIT, which owns retail malls in Singapore and Australia.
During the past three years, SPH has collected a portfolio of purpose-built student accommodation (PBSA) which according to its latest annual report is valued at $1.4 billion.
While SPH is not a trailblazer in terms of product innovation, a PBSA REIT has been a long time coming. Mapletree Investments made an initial foray into PBSA in 2016, and set up Mapletree Global Student Accommodation Private Trust in 2017, for an initial term of five years. Its AUM is US$1.3 billion and the assets are in the US and UK. Whether this trust is ready to be listed as a REIT next year remains to be seen.
Market chatter suggests that SPH may beat Mapletree Investments to listing the first PBSA REIT, which could be named something along the lines of SPH Residence Trust or SRT for short. This could house the $1.4 billion student accommodation portfolio in the UK, and perhaps even aged care and other forms of lodging like in Ascott Residence Trust.
As SPH recycles these assets into the REIT, it would free up capital to acquire and incubate more PBSA assets. SPH has a management company, but with just one REIT, it is too small to be listed. This means the media-turned-property group could list a second REIT sooner rather than later.
Just like how CapitaLand’s once core development business is to be privately held and safely cocooned, SPH could be an inspiration for others.
