Room for more green Reits: study - Singapore

Room for more green Reits: study - Singapore

Need to push for more eco-friendly practices in real estate, especially Reits sector: NUS report
By MICHELLE QUAH
REAL estate investment trusts (Reits) are becoming increasingly ubiquitous in Singapore, thanks to their popularity. But more could be done to improve their environmental impact, given their growing significance in the property scene.
Dr Joseph Chun of law firm Shook Lin & Bok has noted - in a recent study he undertook while he was then employed by the NUS’s Department of Real Estate - that the legal framework in which Reits operate has the likely effect of undermining the Singapore government’s efforts to encourage green property development and management.

And he has suggested that there may be a need to consider measures to counteract these presumably unintended adverse environmental effects.

‘Real estate is one of the most significant asset classes in Singapore … However, the land is more than an investment asset to be managed for maximum income; it is also our abode in which we live, work, and play. Investment decisions that enhance or degrade this abode have serious impacts on our lives that go beyond financial returns,’ Dr Chun said, in his article Are Reits Built to be Green?.

He suggests that more needs to be done to encourage environmentally friendly practices within the property sector in general, and the Reits sector in particular.

The popularity of Reits as an investment tool in Singapore has encouraged the growth and creation of such trusts. The number has grown from just one - CapitaMall Trust, listed in July 2002 - to 20 Reits now listed on the Singapore Exchange.

There have been estimates that Reits could eventually constitute up to 70 per cent of the listed real estate in Singapore - in line with international trends.

‘As Reits increase their dominance of the urban environment, the need to avoid or at least mitigate those aspects of Reit law that encourage unsustainable behaviour will correspondingly become more urgent,’ Dr Chun proposed in his article.

He believes the nature of Reits as an investment tool and the legal framework governing them significantly restrict the scope of any green agenda.

He observed that Reits are designed to appeal to investors looking for short-term, steady cash returns - with little to motivate the Reit manager to invest in measures that benefit the public or the occupants of the Reit’s properties, ie. green measures, if these do not increase the Reit’s income.

‘As long as tenants who pay the utility charges are not willing to pay a premium for energy efficiency or healthier indoor environment, investing in green refurbishments that do not provide significant quantifiable financial returns is simply not an attractive use of limited funds,’ he noted.

The short-term orientation is further encouraged via the reporting requirements placed on Reits - with managers having to report the trust’s financial performance every quarter, value each property of the trust at least once a year and report the annual value in the annual report. These act as a barrier towards a life cycle approach to investing in environmental performance.

There are also funding constraints to pursuing a green agenda, with Reits having to distribute most of their taxable income to unit holders in order to maintain their tax transparent status.

‘The legal limit on the amount of its funds a Reit can invest in property development coupled with the relatively risky nature of property development also doesn’t help the green cause as it means that a Reit is more likely to seek out existing buildings to acquire rather than opportunities to develop new properties,’ Dr Chun said.

Typically, it is easier and less costly for developers to incorporate environmentally friendly features into new buildings than it is to improve the energy efficiency of existing buildings.

A cue could be taken from the US, where several states offer tax credits for buildings that meet certain green standards.

Dr Chun believes the law can be amended to encourage the development of more environmentally friendly buildings. He suggests relaxing the legal requirements on the minimum distribution of dividends and limits on borrowings in respect of retained earnings or borrowings invested in refurbishment, retrofitting and renovation activities that lead to a property achieving a green rating.

He also believes that measures could be put in place to mandate annual assessments of the environmental performance of the properties owned by Reits, alongside the current annual valuations needed of the properties owned by Reits. ‘(This will) help ethical investors make informed decisions about the green value of a Reit, thereby giving the Reit looking to attract the ethical investors’ dollar a motivation to upgrade its environmental performance,’ he said.

Dr Chun concludes, in his piece: ‘Sustainable development requires us to integrate the environmental considerations into all our development decisions, including our investment decisions, so it is unsatisfactory when the law encourages investment in real estate that has the potential to cause environmental harm without simultaneously providing for compensating measures to avoid or mitigate the harm.’
Source : Business Times - 10 Dec 2007

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Singapore STB approves sale of Farrer Court

Singapore STB approves sale of Farrer Court

By CHOW PENN NEE

(SINGAPORE) The Strata Titles Board (STB) has given the go-ahead for the sale of Farrer Court to a CapitaLand-led consortium.

New look in 2009: CapitaLand wants to turn the site into a 36-storey condominium with about 1,500 apartments
At a price tag of $1.34 billion, it is the largest amount ever fetched for a collective sale. The approval was granted last Saturday.

The consortium - comprising CapitaLand, Hotel Properties and US-based Wachovia Development Corporation - said in June that they would pay a record-setting $1.34 billion for the 618-unit development.

This beat the reserve price of $1.2 billion but is still lower than the owners’ asking price of $1.5 billion.

Farrer Court owners had upped their reserve price from $700 million to $840 million at the start of the year, and then increased it to $1.2 billion in March.

The unit land cost to the developers for the leasehold District 10 site works out to $762 to $783 psf of potential gross floor area.

BT understands that owners of two units objected to the sale, on grounds that the price was not high enough.

The privatised HUDC estate has 618 existing apartments of two sizes - 1,615 sq ft and 1,453 sq ft - and their owners will get $2.238 million and $2.122 million per unit, respectively. Based on the apartments’ existing strata areas, the proceeds to owners work out to $1,386 psf and $1,460 psf, respectively.

Credo Real Estate brokered the sale, and law firm Rodyk & Davidson represented the majority owners.

CapitaLand wants to turn the site into a new 36-storey condominium with about 1,500 apartments, likely to be ready for launch in the first half of 2009.

Source : Business Times - 10 Dec 2007

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Singapore En bloc deals top $13b but pace is slowing

Singapore En bloc deals top $13b but pace is slowing

Sales in H2 account for only $2.8b as price gap between owners, developers surfaces
By KALPANA RASHIWALA

(SINGAPORE) It was the best of times, it was the worst of times.

With 82 en bloc deals worth $10.49 billion transacted in the first-half, and just 27 sites worth $2.81 billion transacted in the second-half so far, ‘2007 has been a ‘tale of two halves’ for the collective sales market,’ says CB Richard Ellis executive director Jeremy Lake.

Nonetheless, the year- to-date tally for 2007 - 109 deals done at $13.3 billion - is a whopping jump from the 79 deals amounting to $8.2 billion transacted for the whole of last year.

‘A price gap (between what owners were asking and what developers were prepared to pay) that was not there between January to June this year began to surface in July, so owners’ price expectations had overshot, and this was compounded by the sub-prime crisis. By September/Octo-ber, developers took a back seat when it came to bidding for land,’ Mr Lake said.

As for next year, CBRE’s view is that the total value of en bloc sales for 2008 may not be as high as this year’s all-time record.

A major highlight on the collective sale calendar this year was the introduction of new legislation in October which put in place more processes and safeguards to ensure the entire en bloc process is more transparent for all owners.

This led to a rush to sign collective sale agreements before the onset of the legislation - everything otherwise would be unwound and the process have to be restarted under the new law. As a result there was a flurry of en bloc sale tenders launched between September and November.

However, in the longer term, the new rules and procedures - which include how sales committees are formed and how they conduct their business - mean it could take a longer time to launch collective sale sites for sale.

As for next year, CBRE reckons ‘developers will still remain interested in acquiring development sites, although they are likely to be much more selective and focus on acquiring reasonably-priced sites in good locations’.

Industry observers also predict the pace at which developers acquire more collective sale sites will be a function of how well their residential projects sell.

The top buyers of collective sale sites so far this year have been companies linked to banker Wee Cho Yaw (UOL Group, Kheng Leong, United Industrial Corp and Singapore Land), which collectively bought six collective sale sites for a total of $1.6 billion.

This was followed by Malaysian tycoon Quek Leng Chan’s GuocoLand, which bought three sites (Leedon Heights, Palm Beach Garden in the East Coast area and Toho Garden at Yio Chu Kang Road) for a combined $972.5 million.

Property giant CapitaLand was in third position, with stakes in three sites (Char Yong Gardens, Gillman Heights and Farrer Court) purchased for a combined $953 million.

Up-and-coming property player, Bravo Building Construction, snapped up $824.5 million worth of en bloc sales deals.

The Kwek family’s listed City Developments and privately-held Hong Leong Holdings have picked up a total of $672 million of collective sale sites.

Other sizeable buyers this year include Hotel Properties (about $640 million) and Lippo Group and its listed unit Overseas Union Enterprise ($681 million).

Property magnate Ng Teng Fong’s Far East Organization has invested in about $400 million of collective sale sites so far this year, after buying close to $1 billion worth of such properties last year.

CBRE’s analysis also shows that a total of 142 collective sale launches have been advertised so far this year, of which about half or 69 sites have been sold. The other 40 deals struck this year involved either sites launched prior to 2007 or sites whose launches were not advertised.
Source : Business Times - 10 Dec 2007

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Politics behind review of Jakarta deals - Singapore

Politics behind review of Jakarta deals

By Leslie Lopez, South-east Asia Correspondent

JAKARTA - WHEN foreign sentiment in Indonesia slipped to basement levels after the devastating Bali bombings of 2002, Singapore and Malaysia made key investments to help prop up the country’s cash-strapped economy.

At the time, Jakarta hailed its two neighbours because the investments in the telecommunications and banking sectors helped Indonesia pay the salaries of its bloated civil service and settle immediate debt burdens.

Indonesia’s neighbours, particularly Singapore’s Temasek Holdings and Malaysia’s Khazanah Holdings, are not feeling very welcome these days.

Observers and analysts believe their troubles with the Indonesian authorities reflect intense political jostling ahead of the country’s presidential election in 2009.

This is why: Ms Megawati Sukarnoputri, Indonesia’s president between mid-2001 and October 2004, has emerged as the most serious challenger to President Susilo Bambang Yudhoyono as well as his deputy Jusuf Kalla, who analysts see as harbouring intentions of running for the top job.

The sale of assets to Temasek and Khazanah occurred during Ms Megawati’s watch.

Temasek and Khazanah were among the first regional corporations to scout for potential investments in Indonesia despite the country’s many political and economic problems.

At the time, many analysts said that Temasek and Khazanah had overpaid for their Indonesian investments, which were in deep financial trouble.

But those investments are now thriving on the back of improved management practices and a stronger Indonesian economy.

Several analysts believe that senior officials in Jakarta are now keen to re-nationalise these ventures or ensure that the stakes controlled by the foreign companies are in local hands.

Those close to Ms Megawati say that renewed scrutiny of the deals could be aimed at undercutting her growing public appeal and an attempt by opponents to attack her administration for selling off national assets.

Mr Budiman Sudjatmiko, a senior party official in Ms Megawati’s Indonesian Democratic Party - Struggle (PDI-P), acknowledged that there could be political motivation for the reviews.

‘If they continue this path, we can easily answer these allegations,’ he said.

Jakarta has dismissed a political angle to the recent troubles faced by foreign companies.

‘Whoever wants to do business in Indonesia has to comply with Indonesian law,’ Vice-

President Jusuf said two weeks ago after the country’s antitrust watchdog body ruled that Temasek had violated anti-monopoly laws.

But many businessmen and analysts say the political dimension is unmistakeable, given that the Temasek and Khazanah deals were approved by Indonesia’s Parliament and antitrust agency during Ms Megawati’s administration.

‘It is important that Indonesian policymakers ensure that politics is kept away from business. Otherwise, this is only going to raise the investment risk profile of Indonesia,’ said the chief executive of a Malaysian bank with business interests in Indonesia.

The troubles faced by Temasek and Khazanah highlight the challenges foreigners continue to encounter in Indonesia, where bureaucratic fickleness, government corruption and unclear labour policies combine to make the country one of the toughest places to do business in the region.

Temasek owns a 56 per cent interest in Singapore Telecommunications, which in turn owns a 35 per cent stake in PT Telekomsel, Indonesia’s largest telecommunications operator.

Temasek’s wholly owned Singapore Technologies Telemedia controls 75 per cent of Asia Mobile Holdings, a company that owns 41.9 per cent of PT Indosat Satellite Corp, or Indosat.

Under what several bankers and economists say is flimsy reasoning, Indonesia’s antitrust watchdog agency - commonly referred to as KPPU - ruled last month that Temasek must dispose of its stake in either Indosat or Telekomsel to remove the alleged stranglehold it enjoys over the country’s mobile phone business.

The two Temasek subsidiaries have declared that they will challenge the decision.

While Temasek’s troubles have been widely publicised, the problems faced by Khazanah are only slowly emerging.

Bankers and company executives say that in recent weeks, Khazanah-controlled telecommunications giant Telekom Malaysia, which controls mobile operator PT Excelcomindo, has been informed by Indonesia’s telecommunications regulators that key licences previously awarded are now under review.

CIMB Bank - Khazanah’s financial arm and Malaysia’s most aggressive banking group, which controls Indonesia’s Bank Niaga - is also under some heat.

CIMB sources say that Bank Niaga had been told that a potentially lucrative contract it won in an open tender last month to supply smart cards to an Indonesian state-controlled toll-road operator is now under review.

Malaysian executives originally feared that the setback faced by the Khazanah units had more to do with the recently frayed bilateral ties over Malaysia’s alleged ill-treatment of Indonesian migrant workers.

Now, they believe that politics, particularly the jockeying ahead of the 2009 presidential election, may also be a factor. And that, in turn, could prevent potential investors from committing fresh funds because of the potential uncertainty ahead of the presidential election.

‘Why, after four years, are questions now being raised?’ asked prominent Indonesian lawyer Frans Winarta, counsel for Temasek’s Singapore Technologies Telemedia.

‘We need to protect foreign investors if we are to attract more investments. But this KPPU decision is the other way around and is counter-productive.’

The chief executive of a European manufacturing concern in Indonesia said: ‘The government needs to give a signal on its commitment to deals that it has affirmed before. Otherwise, foreign investors who did deals under previous governments should worry.’

Several Indonesian economists have also expressed surprise over the KPPU scrutiny of the Temasek units in the telecommunications sector, given how several other sectors of the economy remain closed to open-market competition.

‘The import of many products and goods is enjoyed by monopolies of a select few groups picked by the government. KPPU and the government should be opening up these sectors first,’ said Professor Faisal Basri, a prominent academic at the University of Indonesia.

Source : Straits Times - 10 Dec 2007

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