nomic rebound helped generate an 82.6 percent total rate of return
for investors, according to the F TSE EPRA/NAREIT Global Real
Estate Index. Hong Kong generated a 88.7 percent return.
Over the past year, a few factors have helped fuel the increases. The Asia/Pacific region is leading the world in terms of
economic recovery, helped in part by government stimulus programs, steady exports and healthier financial systems. As was the
case in the U.S., Asia’s REITs successfully raised capital to help
allay investor fears of illiquidity, repairing balance sheets and reducing leverage. Some analysts expect this to lead to new REIT
offerings in the region in 2010, particularly in Singapore.
However, last year’s dip in the markets did expose some weak-nesses in the Asian REIT models. The requirement to distribute
most of their cash put them in a bind, as banks clamped down
on lending and asset values fell. The Asian Public Real Estate
Association (APREA) is urging governments to allow REITs
more ways to raise capital. For example, in Japan, REITs can’t
issue convertible bonds and buy back their own shares.
“We have made a number of submissions with the purpose of
enabling J-REITs and other Asian REITs to expand their capital
tool kit to put them more on par with operating companies,” says
Peter Mitchell, chief executive of Singapore-based APREA.
Singapore has been able to adopt measures through regulations allowing S-REITs more tools to raise capital; in Japan it
will require legislation. That difference has been a contributing
factor in the difference in performance of Singapore and Japan,
according to Mitchell.
Yet, overall, with Asia taking the lead in the global economic
recovery, things are looking much brighter than a year ago.
In most major cities, declines in office rents are slowing or are
hitting bottom. “From a REIT perspective, the market is vi-
brant,” says Lok So, operations director at APREA. “As with
REITs everywhere, the global financial crisis—and the drying
up of both debt and equity sources—highlighted some pressure
points with Asian REITs.”
Regulators, especially in Japan and Singapore, have been quick
to respond. “Over time we expect to see strong regulatory struc-
tures as a result,” So adds.
REIT.com Video: To watch a video with APREA Chief
Executive Peter Mitchell, visit
Back to Basics
In the last three years, Australian REITs have posted a loss of 25 percent, second worst among global REIT markets. A-REITs’ market cap plunged 51 percent during 2008 as
a result of the financial crisis. However, the sector rebounded in
2009. Last year, Australian REITs posted a total return of 33. 4
While the 2009 rebound was encouraging, the depth of the
declines in 2008 came as somewhat of a surprise, as Australia’s
5 Goodman Group
Source: FTSE EPRA/NAREIT Global Index
economy fared relatively well in the global recession. That was
due in part to rising commodity prices, which have aided the
resource-rich nation. But A-REITs had strayed over the years
from the traditional property ownership model of mainly collecting rents to taking on development, funds management and
Roberto Fitzgerald, executive director of international and capital markets with the Property Council
of Australia, says Australian REITs’
overseas assets grew from 10 percent
of total assets in 1997 to 40 percent at
the peak in 2007. At the same time,
he says, non-rental revenue from
development and funds management
rose to almost 20 percent.
When the credit crisis hit, “these
public REITs were not a very good
proxy for real estate exposure,” Anvil
Capital’s Learmonth says. As a result, investors fled.
The 2009 reporting season reflected millions of dollars of unrealized devaluations but also the real
impact of write-downs of capitalized goodwill, losses on asset
disposals and expensive unwinding of foreign exchange derivatives, Fitzgerald says.
Australian REITs have since worked to reduce leverage on
the balance sheet, using capital raises to lower debt ratios to the
30 percent level, down from around 45 percent, according to
Learmonth. A-REITs also cut staff, and many companies have
unloaded business units ranging from development teams to passive investment divisions to get back to original core specialties,
For instance, GP T Group (ASX: GPT) announced the sale of
its remaining U.S. malls in its portfolio in December, asserting its
focus on Australia going forward; Stockland Group (ASX: SGP)
is looking to sell its assets in the United Kingdom in the next three
years, the company said in a report to shareholders in February.
Learmonth says investors on the sidelines might find a good
value at hand: “For those investors sitting on the fence, they can
say, ‘ Well it’s not a perfect proxy for real estate, but obviously the
sector is going to survive now, it’s deleveraged and the current
prices look like a reasonable value.’”
for the future