Page 94 - ar2013

Singapore has established itself
as a major Asian hub for real
estate investment. However, it
faces competition from other
regional markets, as they are
establishing their own real estate
investment trust and business
trust frameworks and will compete
increasingly for listings.
The current concern for S-REITs
is the sunset clause attached to
the tax incentives. A number of
tax incentives which were critical
to encouraging the propagation
of S-REITs, including the stamp
duty remission in respect of the
transfer of local properties and a
lower withholding tax of 10.0% on
qualifying S-REITs distributions,
are due to expire in March 2015.
On 30 January 2014, the US
Federal Reserve decided that it
will continue to reduce the scale
of its bond purchase stimulus
programme, with the programme
expected to be tapered steadily
through 2014. The S-REITs may
face the challenges of rising interest
rates and correspondingly higher
borrowing costs when financing
new acquisitions and refinancing
existing debts. To compensate
for the higher borrowing costs
and achieve better yields, S-REITs
will now have to look at how
best to achieve organic growth,
for example, by undertaking
asset enhancements, active lease
management and proactive asset
management to achieve positive
rental reversions. In addition,
S-REITs need to re-examine and
be more proactive in their capital
management. This would include
scrutinising the hedging policies
and debt strategies. According to
a media report in 2013, S-REITs
have become less reliant on
traditional senior loans secured
against specific assets, and are
taking to using medium-term
note (MTN) issuances as an
alternative source for the financing
of their real estate portfolios.
The higher portions of unsecured
MTN of total debts, coupled
with a prudent leverage ratio
have helped to support a higher
unencumbered asset ratio for
their portfolios, which enhanced
the financial flexibility of S-REITs.
LOOKING FORWARD
The framework for S-REITs has
been continually refined since
CMT’s listing as the first S-REIT
in 2002. We believe that we
will continue to see efforts in
enhancing and refining the
existing S-REITs regime as
Singapore seeks to stay
abreast of the competition.
We continue to see interest in
the listing activity in the S-REITs
and business trusts in 2014. The
success of these new listings will
depend on, among others, the
performance of comparables
in the market and the extent
of yield compression flowing
from the tapering of the US
stimulus programme.
Singapore REIT
Sector
Clarity 92 CapitaMall Trust Annual Report 2013