Real estate: It’s raining Reits

Asia’s business community is never slow to spot a trend and real estate investment trusts are certainly hot news. A trickle from the pipeline of early Reit offerings in Singapore and latterly Hong Kong earlier in 2005 threatens to become a torrent of new issues in 2006 as the region’s property developers and investment banks line up to launch new vehicles for Asia’s yield-voracious investors.

In November, after a shaky start, Link Reit, the Hong Kong government’s agglomeration of retail malls and car parks, was greeted with euphoria by Hong Kong’s IPO-mad public. The $2.54 billion IPO was heavily oversubscribed, attracting total orders of $47 billion, including $14.5 billion from the public. The share price has jumped some 40% since trading began, although that has been helped significantly by the revelation that a US hedge fund has built a sizeable stake [see Hong Kong story].  

Quickest out of the blocks after the Link Reit stalking horse was Li Ka-Shing with the $246 million IPO of Prosperity Reit, a spin-off of various property interests from flagship developer Cheung Kong Holdings. A potent combination of the latest hot investment craze, an offering from Hong Kong’s very own Mr Midas sprinkled perhaps with some additional seasonal euphoria was too much for Hong Kong’s money-mad public. Prosperity Reit closed more than 300 times oversubscribed by retail punters. Institutional investors also applied for 80 times the amount of stock available.

Three more Asian property developers have revealed their Reit plans. Malaysian infrastructure conglomerate YTL Corp launched the $305 million IPO of Starhill Reit, Malaysia’s second and largest Reit, raising $136 million. In Singapore, local developer Keppel Land announced plans to spin off a portfolio of local office towers into K-Reit Asia by way of distribution to Keppel Land shareholders on the local bourse, although there are no immediate plans to raise fresh capital for the vehicle.

Mainland China will get its first Reit when GZI Reit is spun off from Guangzhou Investment Company Limited and listed in Hong Kong. GZI Reit will initially hold retail and commercial buildings in Guangzhou and plans to raise up to $400 million by way of an IPO.

ING Real Estate, along with several Korean insurance companies and Dutch pension funds, launched ING Korea Property Investments Co in November, a private Korean company with a target asset size of approximately $800 million. Although not a Reit, the fund invests in and actively manages a portfolio of properties in Korea.

Amid Asia’s Reit euphoria, clever bankers at Macquarie announced the IPO in Singapore of Macquarie International Real Estate Fund Limited (Miref), essentially a Reit investing in Macquarie’s existing family of Reits. Unfortunately for Macquarie, investors were lukewarm on the deal.