SINGAPORE (Dec 10): Singapore’s real estate investment trust sector has been the main success story of the past 16 years for the Singapore Exchange, turning Singapore into a REIT hub of sorts. The S-REIT model that has endeared both investors and issuers to it is the external manager model. It kick started with local developers becoming sponsors and major unitholders of their REITs.
Ascendas-Singbridge, CapitaLand, Mapletree Investments, Keppel Land, Frasers Property and City Developments listed some of their best investment properties into REITs. The developers supported the REITs in terms of management and, more importantly, during fundraising exercises when the REITs made acquisitions.
“The externally managed S-REITs are very successful because sponsors are very committed to making the REIT successful,” says He Jihong, chief investment officer of Ascendas-Singbridge. “It’s very important for a REIT to be backed by a strong sponsor to provide a pipeline and ensure the execution of the deal. If necessary, the sponsor works together with the REIT manager to ensure we can make the necessary acquisitions. We work together as a team.”
He cites Ascendas REIT’s acquisition of two logistics portfolios in the UK as an example of this teamwork. In July, It acquired a portfolio of 12 logistics properties for £207.27 million ($373.15 million). In September, it acquired 26 logistics properties located in the UK — this time in the West Midlands — for £257.5 million (Ascendas REIT is the largest S-REIT by assets under management (AUM) and market capitalisation, at $10.6 billion and $8.02 billion respectively).
“We have set up an office and are building a team in London because logistics assets are relatively simple to manage, as both portfolios are on long-term triple net leases,” He says, adding that asset management and related services are being provided by Ascendas-Singbridge’s UK unit. “This symbiotic relationship between sponsor and REIT is very important.”
In addition to Ascendas REIT, AscendasSingbridge Group, with AUM of $22.3 billion, is sponsor and major unitholder of two more property trusts — Ascendas India Trust (a-iTrust) and Ascendas Hospitality Trust (AHT).
Over a five-year period, the property trusts have averaged a total return including yield of more than 9% a year. a-iTrust has been the star performer, returning 102% over the past five years, or 15.1% a year, according to Bloomberg. Since its IPO in 2014, AHT has returned 60.4% to unitholders, or 9.9% a year. Ascendas REIT’s total returns stood at 59.5% as at Dec 3, or 9.8% a year since 2013.
Turning to logistics for next growth phase in India
a-iTrust’s performance is quite remarkable. Its distribution per unit, which is paid in Singapore dollars, is up 49% since its IPO, even though the rupee has fallen 50% against the Singapore dollar.
“We work our assets in India very hard and we made several acquisitions. a-iTrust bought Arshiya,” He says, referring to the completion of a-iTrust’s acquisition of a portfolio of six operating warehouses with a net leasable area of 832,249 sq ft in the Arshiya Free Trade Warehousing Zone (FTWZ) in Panvel, near Mumbai. The total cost of acquisition comprises an upfront payment of INR4.34 billion ($91.4 million) and an additional deferred consideration of up to INR1 billion to be paid over the next four years, contingent on the achievement of certain performance milestones.
The transaction also provides a-iTrust with the right to extend construction funding and acquire future development within the FTWZ, subject to fulfilment of certain terms and conditions set by the vendor. The estimated future development potential is 2.8 million sq ft. Key clients in the operating warehouses include DHL and Huawei. The FTWZ is near Jawaharlal Nehru Port, one of India’s key ports.
In addition to the six warehouses, which form part of a-iTrust’s 12.6 million sq ft portfolio, it has seven IT parks spread across Bangalore, Hyderabad and Chennai.
Ascendas-Singbridge has effectively two businesses in India. It holds income-generating properties in a-iTrust, which also undertakes development but only up to 20% of its asset size of $2 billion.
In June, Temasek Holdings and Ascendas-Singbridge announced they had jointly committed INR20 billion to invest in logistics and industrial real estate in key locations in India.
Ascendas-Singbridge also uses its own balance sheet for large development projects such as a new township in Andhra Pradesh. Earlier this year, Ascendas-Singbridge, together with Sembcorp Industries, announced they were the master developer of Amaravati Capital City Start-up Area in Andhra Pradesh. “We, as the master developer, do the master planning. We will undertake some [property] development and some infrastructure [development] such as roads, and we invite investors to come in to bid for land,” He says, adding that the infra structure involves pipes, sewerage, water plants, schools and hospitals.
Following the megatrends
Logistics assets are a proxy to what Ascendas-Singbridge views as three important megatrends — technology and innovation, ecommerce and data-driven analytics.
“We like the theme of a technology- and innovation-driven economy. If you look at our Science Park, business parks and acquisitions in the US (see sidebar), they are all technology-focused, and healthtech- and medtech-focused. We look for the key economic driver of the future economy. We don’t mind going out of the CBD area because that’s where a lot of R&D is based,” He says.
The second theme is e-commerce. “We believe e-commerce will continue to develop and that’s why we like the logistics theme,” He says. Ascendas-Singbridge owns logistics assets in Singapore, the UK and Australia through Ascendas REIT, and in India through a-iTrust and its recently set-up fund with Temasek.
The data-driven theme is played through data centres, which are held by mainly Ascendas REIT. In September, Ascendas-Singbridge acquired 9 Tai Seng Drive from Sabana REIT for $99.5 million and has planned asset enhancement initiatives to develop the property into a state-of-theart data centre. Ascendas-Singbridge is also using data analytics to understand tenants better and for its experimentation in co-working and community spaces.
Ascendas-Singbridge invests in these three main themes through its listed REITs, joint ventures, separate accounts and private funds, and with its own balance sheet.
“We are quite flexible in looking for different financial resources. It all depends on the opportunities. If they are mature, income-generating, stable assets, the REITs can acquire them immediately. If we go up higher in the risk curve, we will [invest] through other forms of investments,” He says.
For instance Ascendas-Singbridge acquired CPF Building, which is being redeveloped, through a joint venture with Mitsui & Co. In South Korea, it manages private funds invested in commercial buildings and, in Australia, it acquired two office buildings with its own balance sheet.
“We are a company that grows steadily and profitably. The investment strategy is to keep to this profitable growth path. For expansion and new forays, we take a very cautious approach. We grow not for size but for profit,” He says.
For FY2017/18 ended March 31, Ascendas-Singbridge’s revenue grew 16.3% y-o-y to $841 million and its earnings attributed to shareholders rose 13.1% to $489.6 million. Its return on equity was 19%, and return on capital employed 6.4%. While the ROE figure is high, the company’s debt-to-equity is 3.4 times. However, a $4.8 billion loan from a non-controlling interest has no fixed term of repayment and is viewed as quasi equity. In this event, gearing falls to 0.45 times, and ROE to 8.5%.
