Its strategy will involve leaning on cornerstone investors

WITH the dust finally settling after the tumultuous past few weeks, the folks behind MacarthurCook Industrial Reit (MI-Reit) are understandably keen to leave the past behind them.

But, perhaps of greater interest to its unitholders are the plans that its managers have for the trust, which they shared with The Business Times yesterday.

‘I think it’s important that we draw a line across what has happened and leave the past behind us,’ said Nicholas McGrath, CEO of MI-Reit’s manager, referring to the very public spat that it had with rival and substantial shareholder, Cambridge Industrial Reit (CIT).

‘What we need to do now is look ahead and focus on our future plans. I believe we have a very strong platform for growth, thanks to our sponsors, as well as great intellectual capital and Reit management expertise from them, and now, a strong balance sheet,’ he said.

Mr McGrath’s first job would be to pay off the debt accumulated as a result of decisions undertaken by the previous management – namely, the $226 million in loans and the $90 million obligation to buy a property, for which MI-Reit had to recently mount a highly controversial refinancing plan.

This refinancing plan was heavily criticised by CIT, which had bought a near 10 per cent stake in MI-Reit after the latter announced plans to raise $217 million from a placement to cornerstone investors and $215 million from a rights issue. CIT said that the recapitalisation exercise destroyed value for unitholders as the discount to net asset value was too steep – and proposed itself as manager of MI-Reit. What followed was a weeks-long slugging match that saw both sides take out advertisements in the newspapers to defend their positions.

Eventually, CIT’s bid to take control of MI-Reit was blocked by the Monetary Authority of Singapore (MAS), and CIT’s chief, Chris Calvert, was forced to backtrack on what he had said. But disgruntled MI-Reit unitholders, already stirred up by the debate that had gone on before, continued to take MI-Reit’s managers to task at Monday’s extraordinary general meeting to vote on the refinancing plan. While the plan was voted through at the meeting, Mr McGrath recognises that the issue is not entirely resolved – and will need to be dealt with, along with his other plans for the Reit.

‘There will have to be lots of communication with our investors, both retail and institutional, over the next 12 months. We will maintain a very transparent and open environment,’ he said.

Desmond Ong, managing partner of Eversheds Singapore and adviser to the MI-Reit board, noted: ‘The board is determined to repay the faith shown in them by the majority of the unitholders after the events of last week.’

Mr McGrath believed that the Reit will have a better story to tell. Once its existing debt is cleared off its books, by the end of the year, MI-Reit will be left with a stronger capital position – with 29 per cent leverage.

Greg Bundy, deputy chairman of AIMS, added: ‘That will also coincide with a re-rating of property assets, when the economy recovers. Nicholas has been conservative in rating MI-Reit’s assets – booking a 16 per cent decrease in property values when others like CIT have gone with 10 per cent and Mapletree Logistics with 5 per cent. So, MI-Reit should benefit nicely when property assets appreciate.’

Mr McGrath said that he intends to pursue a ‘prudent capital management plan’ which includes keeping the trust’s leverage at between 29 and 35 per cent, and ensuring that it only invests in assets that will boost its yield.

‘I will guard the distribution (to investors) with my life,’ he told BT yesterday.

Part of that valiant strategy will involve leaning heavily on the Reit’s cornerstone investors, AMP Capital Holdings and present sponsor AIMS Financial Group. MI-Reit intends to capitalise on their connections to boost its yields.

Mr McGrath shared that AMP has a warehouse facility which MI-Reit could soon add to its portfolio. While AIMS, an Australian company focusing on funds management, investment banking and real estate investment, has a very strong relationship with Singapore’s United Engineers Limited – whose biggest asset is its UE Tech Park warehouse – which MI-Reit could benefit from.

‘We have a very good pipeline of assets in Singapore; we could easily do $200 million worth of transactions in the next year,’ Mr McGrath said.

He also shared that AIMS would be able to take MI-Reit beyond Singapore – to Vietnam and China.

AIMS executive chairman George Wang, who now personally owns 40 million shares in MI-Reit, told BT: ‘MI-Reit cannot just buy assets in Singapore. It has to look at growth potential beyond that. And I believe China is the future, with its booming economic growth and massive logistics and manufacturing potential.’

Mr Wang said that he looked to the example of market leaders such as CapitaLand, which have recognised China’s potential.

‘During my next two years as chairman of MI-Reit, I intend to bring my resources and contacts to the table, and help the trust’s management to understand the Chinese market. I will introduce my connections to them and help them to understand the Chinese system, the Chinese people and the sort of risks and investments they can undertake.’

Mr Wang, who was born in Hainan, works very closely with China’s Tianjin government – a region which sees 15 per cent annual growth. ‘Tianjin is the next Shanghai. Many large companies have set up there – Samsung, Motorola – and it has a lot of potential for growth,’ he said, adding that he intends to position MI-Reit to tap on that growth.

He said that he intends to hire more locals – more Singaporeans for MI-Reit’s presence in Singapore, and mainland Chinese for its future expansion into China – including for senior positions. ‘I believe that if you want to do business in Asia, you need to have people who understand Asia.’

‘When I step down as chairman in two years’ time, there will be a difference in MI-Reit. I intend to work very hard for shareholders,’ Mr Wang said.

Source : Business Times – 25 Nov 2009

Manufacturing SMEs account for bulk of investment, says Mah in Parliament

Iskandar Malaysia has attracted RM2.64 billion, or some S$1.1 billion, in manufacturing investments from Singapore’s private sector since 2006.

National Development Minister Mah Bow Tan said that this sum comes from the 178 manufacturing projects with Singapore participation which have been approved by Malaysia from 2006, when the Johor economic zone was first launched, till May this year.

‘Singapore is among the top three investors in Iskandar Malaysia,’ said Mr Mah, in a written response to MP Ho Geok Choo’s question in Parliament on local investments in the project and issues discussed at the 5th meeting of the Joint Ministerial Committee (JMC) for Iskandar Malaysia (IM) on Nov 4.

To enhance transport connections, key to developing business links, the JMC agreed at that meeting to ‘double the number of cross-border bus services by January 2010′, Mr Mah said.

He jointly chairs the committee, set up in 2007 to promote bilateral cooperation on IM, with Malaysia’s Minister in the Prime Minister’s Department Nor Mohamed Yakcop.

While the JMC’s sub-groups have been working on transport and immigration clearance, and promoting joint tourism development and environmental cooperation, ‘the private sector has actively seized the economic opportunities that IM presents’ too, Mr Mah said.

Most investments from Singapore have been in manufacturing, particularly those by small and medium enterprises (SMEs), he noted. The majority are in the business of producing plastics, electronics or electrical goods and fabricated metal products.

Manu Bhaskaran, economist and CEO of Centennial Asia Advisors, was not surprised at the large proportion of SME manufacturers investing in Iskandar. ‘In fact, that is exactly the role that Iskandar can play,’ he told BT, since costs are higher in Singapore, although an SME with limited resources is less likely to be able to move its operations far.

It is beneficial to Singapore too, that local companies have the option of relocating manufacturing operations to IM, rather than further afield.

‘The proximity makes it more likely that they will then still keep their headquarters in Singapore,’ Mr Bhaskaran added.

In the written reply, Mr Mah said that local companies in sectors other than manufacturing, such as healthcare services and real estate, ‘have also been actively exploring investment opportunities in IM’. Parkway Holdings plans to set up a hospital in IM, while another Singapore healthcare player, Health Management International, has a hospital already in operation there.

Mr Bhaskaran expects Singapore’s investments in IM to climb, but noted that the development region is still ‘in its early stages’, and issues such as recent concern over the impact of multiple top management changes on investor confidence, lingering concern over Johor’s crime rates, and accessibility from Singapore, will need to be addressed.

Some of these issues have been looked into by the JMC. The JMC’s 5th meeting also noted that ‘fast track’ lane access with the Malaysian Automated Clearance System was extended to all frequent travellers to Malaysia in September.

A study was also commissioned to assess the feasibility of developing nature sites in IM and Singapore’s Sungei Buloh Wetland Reserve as a joint tourism destination. Environmental agencies on both sides are exchanging expertise in areas such as river cleaning, Mr Mah said.

Earlier this month, the JMC said that it would form a new work group to study the joint development of an iconic economic project in IM, proposed by both countries’ prime ministers in May. The JMC will next meet in the first half of next year.

Source : Business Times – 25 Nov 2009

THE Housing Board (HDB) has evicted 185 tenants in the past 12 months, after they were found to have illegally sublet their rental flats.

 These tenants were living elsewhere while subletting the flats, which is disallowed under the law, said National Development Minister Mah Bow Tan.

‘They have abused government subsidy and deprived the truly needy of a rental flat,’ he said in a written reply to a question raised in Parliament on Monday.

He was responding to Mr Lim Biow Chuan (Marine Parade GRC) who asked for an update on the number of evictions of rental flat tenants, and if there are plans to review rental rates to take inflation and the higher cost of living into account.

Noting that rental flats are heavily subsidised, Mr Mah said there is no need to revise rental rates as these are already low and affordable – even for those who earn a very low income.

Households with a total monthly income of less than $800 pay only $30 a month for a one-room rental flat. Those with monthly incomes of between $800 and $1,500 pay 30 per cent of the market rate. Rental rates, Mr Mah said, have been frozen at $110 a month for one-room flats since 2005.

For tenants in severe financial difficulty, the HDB will extend more help, for example, by working out an instalment plan, Mr Mah said.

He also gave an update on studio apartments for the elderly, in response to a question from Nominated MP Paulin Tay Straughan. To date, the HDB has launched 17 such developments in both mature and non-mature estates, with near 100 per cent take-up rate.

Source : Straits Times – 25 Nov 2009

Property group CapitaLand said that it raised $2.8 billion by selling 34.5 per cent of its retail arm CapitaMalls Asia (CMA) in its initial public offering (IPO).

Both the placement and retail shares were oversubscribed, and the company also released all over-allotment shares. In total, 1.34 billion shares were sold at $2.12 apiece.

The listing of CMA – which has a $20.3 billion portfolio of 86 malls in Singapore, China, Malaysia, Japan and India – is Singapore’s biggest IPO since Singapore Telecommunications raised more than $4 billion in 1993.

Analysts expect CMA shares to gain today on their debut, fuelled by demand from institutional investors keen to gain exposure to China’s fast-growing consumer market. More than half of CMA’s malls are in China.

In a note, DMG & Partners analysts Brandon Lee and Jonathan Ng gave a valuation range of $2.42- $3.01 for CMA’s shares. This is between 14 and 42 per cent above the IPO price of $2.12.

CapitaLand had earlier set an indicative range of $1.98 to $2.39 for the IPO, but later decided to price it below the mid-point of the range – a move that analysts said was to ensure that the stock trades well after it debuts.

CapitaLand yesterday reported demand of about 2.5 times for the placement tranche of 1.059 billion shares. An additional 174.8 million shares were over-allotted due to strong demand from investors.

Also, the public offer (excluding reserved shares) of 95 million shares was 4.9 times subscribed. In addition, all of the 11.7 million shares reserved for the directors, management, employees and business associates of the group were also taken up.

‘Upon completion of the IPO and assuming the full exercise of the over-allotment option, CapitaLand’s shareholding interest in CapitaMalls Asia will be reduced from 100 per cent to 65.5 per cent, and the IPO would have raised approximately $2.8 billion,’ CapitaLand said.

CMA chief executive Lim Beng Chee said that the company is well-positioned to ride on strong consumerism trends in Asia and will continue to grow its business in the region, with an initial focus on China and Singapore.

CMA marks the sixth entity within the CapitaLand group to be listed on the Singapore Exchange. CapitaLand has previously said that it could record a one-time gain of $883 million from this IPO.

Part of the proceeds will be paid out as a special dividend to the group’s shareholders. The company will also use some of its proceeds to invest in its residential and service residence business units. In particular, CapitaLand is looking at Singapore, China, Australia and Vietnam for growth for the overall group.

CapitaLand’s shares lost four cents to close at $4.11 yesterday.

Source : Business Times – 25 Nov 2009

But resurgence in speculative activity not likely in short term, says CDL boss

Property tycoon Kwek Leng Beng feels that the authorities could raise the downpayment on the purchase of private homes if there is a risk of resurgence in speculative activity.

Currently, home buyers make a 5 per cent minimum cash downpayment.

‘The downpayment payable . . . can be increased to reduce the amount of speculation. This amount can be increased further should the speculation go unabated,’ Mr Kwek said this week in an e-mail response to BT’s questions.

He had been asked what steps the government could potentially take if a speculative bubble builds up again, following a recent statement by the Monetary Authority of Singapore that the risk of renewed escalation of property speculation could not be discounted.

In the short term, however, Mr Kwek said he does not envisage a resurgence in speculative activity, noting that developers’ sales have slowed for three consecutive months since peaking in July this year.

On Nov 9, the Monetary Authority of Singapore said further action to cool the property market may be needed if recent measures to dampen speculation prove insufficient. It said ‘the risk of a renewed escalation of speculative momentum cannot be discounted’ as Singapore emerges from recession and with the market expecting low interest rates to persist for some time.

‘Going forward, price levels and transaction activity bear close monitoring,’ it said.

Mr Kwek, who is executive chairman of City Developments Ltd (CDL), was generally more measured in his outlook on the Singapore private residential sector in his latest interview than he had been during CDL’s half-year results briefing in August.

He now says the Singapore private residential market ‘will slow down’ following the MAS warning and reinstatement of the confirmed list next year. ‘The integrated resorts (IRs) will not affect the real estate market immediately, unless the world economy recovers substantially when the IRs open, which is not likely.’

In August, Mr Kwek had sounded more optimistic about how the opening of the two IRs with casinos next year will provide a fillip to the Singapore property market, especially luxury homes, citing the experience in Macau.

The pronouncement from Singapore’s de facto central bank this month on the possible risk of a revival of property speculation came just three days after the Ministry of National Development announced it will offer eight sites that can potentially generate 2,925 private homes (including exec condos) for sale under the confirmed list in H1 2010.

The quantum was bigger than what most developers had expected.

‘I was rather surprised by the quantum of the confirmed list but I can understand the government’s explanation for introducing the number of land parcels in the confirmed list,’ Mr Kwek told BT this week.

In announcing the confirmed list, MND noted that the private residential market had seen ‘very strong demand’ from February to September, with developers selling about 12,800 units in the first nine months of this year, against just 4,300 units for the whole of 2008.

The government has also sought to assure market players that there is ample supply and that there is no need for buyers to rush their purchase decisions.

In September, the government scrapped interest-only housing loans and the interest absorption scheme, which some market watchers blamed for stoking speculation.

After last year’s global financial crash, developers began to enjoy a revival in home sales starting in February, peaking at 2,772 units in July. Sales have since slowed, easing to 811 units in October.

Mr Kwek also said the Singapore hotel market will improve in 2010. ‘But by how much and how quickly will depend on the initial success of the IRs . . . The hospitality industry will be directly affected – either adversely or favourably – by the IRs,’ he added.

CDL owns 54 per cent of Millennium & Copthorne Hotels plc, which in turn has a stake in CDL Hospitality Trusts – the biggest owner of hotels here.

Whne the economy recovers, the Singapore office market will rebound in tandem as business picks up in the various sectors, Mr Kwek said. Already, the decline in office rentals is moderating and the sector is seeing an increase in leasing activity and requests for proposals from occupiers, many of which are likely to firm up in the near future.

When asked if financial industry players in the West are likely to resume their pre-crash strategy of developing hubs in Singapore, Mr Kwek said: ‘They have to address their own problems first and put their institutions on sound footing before they start to relocate and to expand.

‘They cannot ignore the Asia-Pacific region, and I believe they also can’t ignore Singapore, which has built up equity in its brand,’ Mr Kwek said.

Source : Business Times – 25 Nov 2009

The Housing and Development Board (HDB) does not price its flats on a cost-plus-profit basis, but on ‘market price less a generous discount’, said National Development Minister Mah Bow Tan in Parliament on Monday.

He shared that the total cost of building flats varies depending on when, where and what HDB builds. The cost includes the cost of land as well as the constuction costs of flats and ancillary services. The total cost can vary from $230,000 for a 3-room flat in Punggol to $530,000 for a 5-room flat in Tiong Bahru.

‘Together with the Additional Housing Grant which varies from $5,000 -$40,000… on average the subsidies amount to about 20 per cent of the market price for 4-room flats. It will be even more for smaller flats. This is the subsidy given to all first-time buyers, to keep the flats affordable.’

Source : Business Times – 23 Nov 2009

The anti-speculative measures implemented by the government in September to cool the property market have worked, said National Development Minister Mah Bow Tan in Parliament on Monday.

‘These measures appear to have had some effect in tempering the exuberance in the private housing market,’ he noted.

The government on September 14 announced a package of measures to prevent a property bubble from forming. One of these measures was the removal of the Interest Absorption Scheme and the Interest-Only Loans (IOL).

Another was the resumption of land sales on the Confirmed List for the first half of 2010.

Source : Business Times – 23 Nov 2009

Some homeowners at the Pine Grove estate along Ulu Pandan Road are making another attempt to sell their properties in a collective sale.

This will be their third bid since 2005.

MediaCorp understands that the minimum reserve price for the 660-unit unit estate is S$1.33 billion.

Depending on the size of the unit and the development charge that is payable, owners stand to pocket an average of S$2 million per unit.

The former HUDC estate has a land area of more than 893,000 square feet.

Farrer Court, another former HUDC estate along Farrer Road, was sold for a record S$1.34 billion in 2007.

Pine Grove’s reserve price is higher than the S$1.2 billion price tag that the Laguna Park estate in Marine Parade had expected in its first tender in September.

Even after the price was reduced later to S$967 million, the Laguna Park collective sale was called off last week.

At Pine Grove, there have already been three sessions to collect signatures for the possible enbloc sale since 15 November.

A fourth session is coming up next Thursday.

At the upcoming session, representatives from property consultancy Jones Lang Lasalle and law firm Lee & Lee will be present to answer homeowners’ questions.

Source : Channel NewsAsia – 23 Nov 2009