SINGAPORE (Mar 6): Maybank Kim Eng Research says setting up an Airport REIT could be another way of financing Changi Airport’s expansion -- which includes a new Terminal 5 and a third runway -- costing “tens of billions of dollars”.

Such a REIT could also help revive what has been a moribund period for the Singapore Exchange. Last year, IPO proceeds raised amounted to US$512 million, down 85% from the previous year.

Singapore also ranked 7 in Asia ex-Japan in 2018 in terms of funds raised, far behind Hong Kong with $35 billion and even Vietnam with $2.6 billion.

“An Airport REIT will help increase the representation and weight of “pure play” Singapore companies on the Straits Times Index,” says Maybank lead analyst Chua Hak Bin in a Tuesday report.

Already, neighbour Malaysia is mulling the setting up an airport REIT, the first in the world, to raise about RM4 billion ($1.3 billion) to fund future airport upgrades and expansion. This will kick off with the development of an 80-acre development in Subang as a world-class aerospace hub.

As of now, the government plans to fund the expansion through borrowings than raising taxes, so as to spread the burden more equitably across generations.

To be sure, Singapore’s fiscal assets have grown to about $1.09 trillion or 232% of GDP as of March 2018, so earmarking a small proportion for a government guarantee on the borrowings or bonds should pose little risk.

“Monetising the existing first three Changi terminals, which already have stable cashflows, could raise a significant amount of funds. This will reduce the amount of borrowings required,” adds Chua.

Changi Airport’s annual operating profit is about $953 million, with total revenue of $2.6 billion for FY2018. While there is no detailed breakdown, the first three terminals could generate income of as much as $500 million, according to Maybank.

Chua says an Airport REIT secured on the rental income of the first three terminals could command a market cap near $10 billion. Meanwhile, Maybank’s REIT analyst Su Tye believes that the rental of the retail portion will be at a premium to the other existing malls and can command as much as $4,500 psf.