Indian hospital operator Fortis Healthcare (FOHE.BO) is looking to list a real estate investment trust in Singapore in the next six months to house its property assets and is looking at a valuation of US$600-US700 million $806-$940 million, said a senior company executive, who asked not to be named.

Fortis, which in late July fell short in its bid for control of Singapore-based hospital operator Parkway Holdings (PARM.SI), has been working on a possible real estate investment trust (REIT) listing for a year, the executive said, adding that regulatory challenges remain.

 

“Now we are quite close. A listing will still take five to six months,” the company executive said.

 

The executive said a listing of all of the firm’s property assets would depend on market conditions in Singapore and the valuation may go up if property prices were to surge in India by the time of going to the market.

 

Putting its property assets into the REIT would free up capital to focus on its core business, the executive said.

 

On Wednesday, IFR Asia reported that Fortis Healthcare was seeking a $1 billion Singapore listing within the next six months for its Indian hospital assets and new acquisitions.  

 

Fortis, controlled by billionaire brothers Malvinder and Shivinder Singh, declined to comment to Reuters on Monday.

 

A REIT is a fund that invests in commercial property and pays most of its rent to shareholders as dividends, which are usually higher than yields on government bonds and offer capital gains if property prices rise.

 

Fortis would like to have about 30% stake in the REIT to ensure stability in leasing, the executive said.

 

"We don’t want to give away 100% and face a situation where our lease is cancelled," the executive said.

 

But a stake in a REIT would mean lease rentals Fortis pays will come back to Fortis in proportion to its ownership of the REIT, which India’s central bank calls "round-tripping" and doesn’t allow, the executive said.

 

“We need to find a way around this," the executive said.     Another hurdle is foreign investment rules in real estate.

 

India allows foreign investments in hospitals and large realty projects, but not in small real estate projects. It’s not clear how a REIT for hospital buildings will be viewed, the executive said.

 

While announcing its exit from its stake in Parkway Holdings in late July, Fortis said it was evaluating a secondary listing in Singapore. Fortis lost out to Malaysian state investor Khazanah in the race to control Parkway after two months of wrangling.

 

Singapore is the third-largest REIT market in the Asia-Pacific region, with industry market capitalisation of around US$20 billion, ranking behind Australia and Japan. 

 

India does not currently allows REITs.

 

The average dividend yield of Singapore’s REITs was 7.74% last year, according to property services firm CB Richard Ellis, much higher than the country’s average 10-year government bond yield (SG10YT=RR) of 2.3%.

 

Top Indian real estate firms DLF (DLF.BO) and Unitech Ltd (UNTE.BO) had planned to list REITs in Singapore but the onset of an economic downturn forced them to defer it. Another Indian realtor, Indiabulls Real Estate (INRL.BO), listed its REIT in Singapore in 2008.