the development of asian reit markets

PHAM, AK The Development of REIT Markets in Asia 1

The Development of REIT Markets in Asia The steady growth in the Asian property market and the success of REITs in the US have been the major drivers for the development of REITs in Asia over the last ten years. There are now over 130 REITs across Japan, Singapore, Hong Kong, Malaysia, Taiwan, Thailand and South Korea. Many other Asian countries are in the process of implementing REIT structures. Given the increased significance of Asian REITs, this paper provides an overall description of the evolution of REITs globally, the development of REITs in Asia, as well as the significance of Asian REITs within a global context.

2014

(Alex) Anh Khoi Pham University of Western Sydney

1/1/2014


Contents

Introduction ..................................................................................................................... 3

The Development of REIT Markets in Asia ..................................................................... 3

Japan ........................................................................................................................... 6

Background .............................................................................................................. 6

Regulatory Structure .............................................................................................. 10

Singapore .................................................................................................................. 12

Background ............................................................................................................ 12


Hong Kong ................................................................................................................. 16

Background ............................................................................................................ 16


Malaysia .................................................................................................................... 20

Background ............................................................................................................ 20


Thailand ..................................................................................................................... 24

Background ............................................................................................................ 24


Taiwan ....................................................................................................................... 28

Background ............................................................................................................ 28


South Korea ............................................................................................................... 31

Background ............................................................................................................ 31


Prospective Asian REIT Markets ............................................................................... 33

India ....................................................................................................................... 33

Pakistan ................................................................................................................. 33

The Philippines....................................................................................................... 34

China ...................................................................................................................... 35

The significance of Asian REITs ................................................................................... 35

Summary ....................................................................................................................... 39

References .................................................................................................................... 43

Contact Author .............................................................................................................. 43


Introduction In the 1960s, the US Congress commenced the creation of Real Estate Investment Trusts

(REITs) which would provide affordable access to investment in commercial property to all

investors. Prior to the establishment of the US REIT regime, the commercial property market

was dominated by high net-worth individuals or institutional investors. US REITs allow retail

investors to purchase partial ownership of large-scale income-producing properties. In addition,

US REITs would also offer investors tax advantages as they are pass-through vehicles,

meaning that income tax is exempted at the corporate level.

Over the last fifty years, investment in US REITs has increased, with US REITs becoming the

most important indirect investment vehicle in property. As of December 2011, US REITs made

up 88.5% of the total listed property market in the US (Macquarie 2011) . The last decade has

seen a rapid expansion of REIT structures worldwide. By 2011, there were 22 countries and

territories around the world that have established REIT regimes. Despite the major impact of the

Global Financial Crisis (GFC), the global REIT market has grown dramatically in the last

decade. The global REIT market has grown to a total market capitalisation of US$700 billion,

with much of the recent growth being in Asia. The region has been the nucleus of the global

economic growth in the last decade, recovering strongly from the GFC and remaining solid amid

the debt crisis in the US and Europe. This strong economic growth combined with rapid

urbanisation have been a major stimulus to the property markets in Asia (Newell 2012).

The Development of REIT Markets in Asia The steady growth in the Asian property market has been the major driver for the development

of REITs in Asia over the last ten years. In November 2000, Japan was the first country in Asia

to establish a REIT market. Since then, there have been six other REIT markets established in

the region. These are Singapore, South Korea, Thailand, Taiwan, Malaysia and Hong Kong.

Other Asian nations such as China, India, Pakistan and the Philippines are also in the

processing of implementing their own REIT regimes. Figure 0.1 illustrates the revolution of REIT

markets in Asia.

In just over a decade, the number of Asian REITs has grown to 133 REITs across the seven

Asian REIT markets with a combined market capitalisation of over US$100 billion as of June

2012. Asian REITs has become a major component of the global property portfolio, accounting


for 12.5% of the global REIT market in 2011 (Macquarie 2011). Japan, Singapore and Hong

Kong are among the top 10 REIT markets globally by total market capitalization. Asian REITs

have also delivered strong performance over the last five years, significantly outperforming the

major REIT markets of the US, UK and Australia (S&P 2012). The development of Asian REITs

is further supported by favourable changes in the regulatory structures in recent years. This has

been received positively by both local and international investors.

Figure 0.1: Evolution of Asian REIT Markets

Source: Author

Table 0.1 shows the top REITs by market capitalisation in each of the seven Asian REIT market

as of June 2012. The largest REITs in Asia were Link REIT (ranked #1 and had US$8.6 billion

in market value), Nippon Building Fund (#2 and US$5.3 billion), Japan REIT (#3 and US$4.7

billion), Capita Mall (#4 and US$4.6 billion) and Accendas (#5 and US$3.5 billion). Three Asian

REITs were in the top 50 REITs globally (Newell, 2012). Asian REITs invest across a wide

range of property sectors including office, retail, industrial, lodging and residential sectors.

Diversified REITs were also available in most markets. There were also REITs engaging in

specialised assets such as healthcare and plantation. In addition, Asia was a pioneer in the

establishment of specialised REIT products such as Islamic REITs and RMB-denominated

REITs. This diverse profile for Asian REITs offer investors many investment opportunities and

significant property exposure.

2001: Japan

2002: Singapore South Korea

2003: Thailand

2005: Taiwan Malaysia Hong Kong

Future: India Pakistan Philippines China


Table 0.1: Leading REITs in Asia by Country: June 2012

Property No. of Mkt Cap. Asia

REIT Name Sector Properties (US$ mln) Rank Japan

NIPPON BUILDING FD. Office 67 5,346 #2 JAPAN REIT Office 57 4,676 #3 JAPAN RETAIL FD. INV. Retail 70 2,859 #7 Singapore

CAPITAMALL TRUST Retail 16 4,634 #4 ASCENDAS REAL ESTATE INVESTMENT Industrial 95 3,476 #5 CAPITACOMMERCIAL TRUST Retail 9 2,593 #8 Hong Kong

LINK REIT Retail 180 8,631 #1 HUI XIAN REIT Diversified 2 2,880 #6 CHAMPION REIT Office 2 2,000 #11 Malaysia

PAVILION REIT Retail 2 1,135 #26 SUNWAY REIT Diversified 8 1,087 #27 CAPITAMALLS MALAYSIA TRUST Retail 4 839 #40 Thailand

CPN RETAIL GROWTH LEASEHOLD Retail 3 729 #44 TESCO LOTUS RETAIL GROWTH Retail 17 666 #49 SAMUI AIRPORT PROPERTY FUND Industrial 1 333 #75 Taiwan

CATHAY NO.1 REIT. Diversified 3 828 #41 SHIN KONG NO.1 REIT. Diversified 6 487 #56 CATHAY NO.2 REIT.TRUST Office 3 347 #72 South Korea

KOCREF 15 CR-REIT Office 1 52 #107 KOCREF REIT 8 Office 2 41 #110 TRUS Y 7 REIT Diversified NA 34 #113

Source: Author’s compilation from DataStream


Japan

Background In November 2000, Japan was the first country in Asia to establish a REIT market. The

Japanese real estate investment trusts (J-REITs) were introduced by the Act on Investment

Trusts and Investment Corporations also known as the Investment Trust Law (ITL). According to

the ITL, there are two different types of J-REITs; (1) investment trusts and (2) investment

corporations. So far, all listed J-REITs have been established as investment corporations

(CBRE 2011).

In September 2001, Japan Real Estate Investment (sponsored by Mitsui Fudosan) and Nippon

Building Fund (sponsored by Mitsubishi Estate) were the first two J-REITs listed on the Tokyo

Stock Exchange (TSE). The Japanese REIT market capitalisation has expanded rapidly to

reach US$50 billion in May 2007. During the GFC, market value fell rapidly by more than half to

its trough at US$21 billion in October 2008. In the period after the GFC, the J-REIT market has

recovered strongly, supported by stimulus programmes (e.g. Real Estate Market Stabilisation

Fund, Asset Purchase Program) by the Japanese government and the Bank of Japan (BOJ)

(ARES 2012).

On March 11 2011, a magnitude 9.0 earthquake struck the east coast of Japan triggering a

devastating tsunami and causing a number of subsequent nuclear accidents. In the immediate

aftermath of the earthquake, fear of a nuclear crisis has shocked the Japanese share market.

The Nikkei 225 share index plunged by 10.22% within a week after the earthquake. The

Japanese REIT market was also affected but to a lesser extent than shares, dropping by only

4.38% for the week. This is partly because the direct impact of the crisis on J-REITs was only

limited, as they had only 3% of their assets in the affected areas (JLL 2011). The estimated

repair cost of damages on J-REITs’ properties totalled ¥2,980 million (US$38 million), averaging

0.11% of their total asset size (ARES 2011). By the end of April 2011, the J-REIT index has

actually increased by 1.72% over the previous month.

With a strong boost by the BOJ’s asset purchasing scheme, J-REITs have been actively

expanding their property portfolios. Acquisitions by J-REIT jumped by 67% yoy to US$9 billion in

2011, accounting for around two-thirds of the total regional volume during the period (CBRE

2012). Despite a temporary setback from the natural disaster, the post-GFC period from


October 2008 to April 2012 witnessed a remarkable recovery of the J-REIT market, as total

market capitalisation almost doubled from US$21 billion to US$41 billion (Figure 0.2).

With 34 listed J-REITs and a total market capitalisation of US$41 billion (Table 0.2), as of

September 2011, Japan has become one of the major global REIT markets. It is home to the

fourth largest REIT market in the world after the US (#1), Australia (#2) and France (#3). In

Asia, Japanese REITs have been playing a leading role, making up 41.1% of the total Asian

REIT market capitalisation as at June 2012. The country has 4 REITs in the top 10 largest

REITs in Asia, 9 in the top 20 and 24 in the top 50. Within a domestic context, J-REITs

accounted for 32.4% of the local listed property securities market. The industry is strongly

supported by the government and the private sector, in particular by professional associations

such as the Association for Real Estate Securitisation (ARES).

Figure 0.2: Evolution of J-REIT Industry: October 2001 – April 2012


GFC

0

10

20

30

40

50

60

No of J-REITs Market Cap (US$ billion)


Table 0.2: J-REITs by Property Sector: June 2012 Sector Market Cap. (US$ mln) No. of REITs Diversified 15,946 16 Office 14,599 7 Residential 4,926 7 Retail 4,434 2 Industrial 2,104 2 Lodging 277 1 Total 42,287 35


Figure 0.3 depicts the J-REIT property segmentation. J-REITs invested across the diversified

(36%), office (35%), residential (12%), retail (11%), industrial (5%) and lodging (1%) property

sectors (Figure 0.3). The majority of J-REITs hold assets in diversified property sectors (16),

followed by the office (7) and residential (7) sector. Table 0.3 presents the profile of J-REITs as

of June 2012. In total, J-REITs own 1,981 properties, averaging 58 properties per J-REIT.

Figure 0.3: J-REIT Segmentation

By Market Capitalisation By Number of REITs

Diversified36%

Office35%

Residential12%

Retail11%

Industrial5%

Lodging1%

Diversified46%

Office20%

Residential20%

Retail5%

Industrial6%

Lodging3%


Table 0.3: Profile of Listed J-REITs: June 2012

Listed Property No. of Mkt Cap. Asia

REIT Name Date Sector Properties (US$ mln) Rank NIPPON BUILDING FD. Sep-01 Office 67 5,346 #2 JAPAN REIT Sep-01 Office 57 4,676 #3 JAPAN RETAIL FD. INV. Mar-02 Retail 70 2,859 #7 UNITED URBAN INV. Dec-03 Diversified 90 2,150 #10 JAPAN PRIME REALTY INV. Jun-02 Diversified 58 1,981 #12 ADVANCE RESIDENCE INV. Mar-10 Residential 190 1,966 #13 MORI TRT. SOGO REIT Feb-04 Diversified 13 1,941 #14 NOMURA RE OFFICE FD. Dec-03 Office 51 1,643 #17 FRONTIER REIT Aug-04 Retail 26 1,576 #18 JAPAN LOGISTICS FD. May-05 Industrial 29 1,255 #22 NIPPON ACC. FD. Aug-06 Residential 88 1,224 #23 ORIX JREIT Jun-02 Diversified 66 1,188 #24 ACTIVIA PROPERTIES INC. Jun-12 Diversified 18 1,172 #25 DAIWA HOUSE RES. Mar-06 Diversified 124 1,061 #28 DAIWA OFFICE INV. Oct-05 Office 36 945 #30 JAPAN EXCELLENT Jun-06 Office 23 929 #33 MORI HILLS REIT INV. Nov-06 Diversified 10 884 #35 KENEDIX REALTY INV. Jul-05 Diversified 83 879 #36 IND. & INF. FD. Oct-07 Industrial 22 849 #37 FUKUOKA REIT Jun-05 Diversified 19 842 #39 TOP REIT Mar-06 Diversified 18 828 #42 TOKYU REIT Sep-03 Diversified 26 781 #43 NOMURA RE RES. Feb-07 Residential 152 725 #45 PREMIER INV. Sep-02 Diversified 54 671 #47 GLOBAL ONE REIT Sep-03 Office 8 594 #51 JAPAN RTL. HOUSING INV. Jun-06 Residential 177 591 #52 MID REIT Aug-06 Office 12 466 #59 SEKISUI HOUSE SI INV. Jul-05 Diversified 64 459 #61 ICHIGO REIT Oct-05 Diversified 67 373 #68 HANKYU REIT Oct-05 Diversified 15 370 #69 HEIWA RE REIT Mar-05 Diversified 88 367 #70 JAPAN HOTEL AND RESORT Feb-06 Lodging 28 277 #79 KENEDIX RES. INV. Apr-12 Residential 20 168 #85 STARTS PROCEED INV. Nov-05 Residential 76 143 #89 INVINCIBLE INV. May-04 Residential 54 108 #96 TOTAL

1,999 42,287

Sources: Author’s compilation from DataStream, ARES (2012) and various companies’ websites


Regulatory Structure

Legal Form According to the Act on Investment Trusts and Investment Corporations (ITL), a J-REIT must be

formed as a trust type or a corporation type. They are further sub-divided to open-ended or

closed-ended funds depending on the possibility of cancellation or redemption of shares. Up to

2011, all of the current J-REITs were corporate type since the legal process for the trust type

was more burdensome and expensive (EPRA 2011). The corporate governance rules for the

corporate type were also considered to be more favourable for investors.

Minimum Initial Capital J-REITs are subject to the minimum investment capital of ¥100 million (US$1.26 million).

Sponsorship The REIT market in Japan has a unique sponsorship system. Under this system, a J-REIT is

required to have a sponsor or a parent company. The sponsor will establish a REIT manager

and acquire a “Building Lots and Building Transactions Agent Licence” and a “Discretionary

Transaction Agent Licence” from the Ministry of Land, Infrastructure, Transport and Tourism

(MLIT). After these licences are obtained, the manager may apply for registration as an

investment manager with the Financial Services Agency (FSA). Typically, J-REITs are

sponsored by major property companies in Japan. For example, the first two J-REITs Japan

Real Estate Investment and Nippon Building Fund, are sponsored by two major property players

in Japan; the Mitsui Fudosan and the Mitsubishi Estate respectively. The REIT sponsor has an

important role because it wholly owns the REIT management company and often have a large

holding in the REIT (CFA Institute 2011).

Management Structure Figure 0.4 outlines the typical corporation structure for a listed J-REIT. J-REITs have an

external management structure, whereby the trust or investment corporation has no employees

and must use a registered asset management company. The investment manager is required to

have a minimum paid-in-capital or net assets of ¥50 million (US$0.63 million) and sufficient

experienced personnel.


Figure 0.4: Investment Corporation Structure for Listed J-REITs

Source: CFA Institute (2011)

J - REIT Investment

Corporations

Board of Directors

Unit Holders

Properties

Asset Manager Custodian

Distributable Income

Asset Custody Fee

Distributions

Management Fee

Outsourcing of Management

Services

Outsourcing of Custodian Function

Flow of funds Services Ownership


Singapore

Background The Singaporean REIT (S-REIT) sector started in 1999, after the first set of regulatory

guidelines for REITs was issued by the Monetary Authority of Singapore (MAS). S-REITs are

subject to the Securities and Future Act (SFA) and the Code on Collective Investment Schemes

(CCIS). S-REITs may or may not be listed on the Singapore Exchange (SGX).

In July 2002, CapitaMall Trust made a successful debut public offering and became the first S-

REIT to be listed on the SGX. The following five years saw a wave of new S-REITs, as both

developers and investors took advantage of the low interest rate environment. During the period

from 2002 to 2007, there were 19 additional S-REITs launched. The industry however suffered

in 2008 as the capital market was impacted by the GFC. The market endured a dry spell over

the next two years with only one successful listing, the IndiaBulls Properties Trust on June

2008. Since 2011, the market however has become more active, thanks to ample liquidity in the

financial system following the implementation of measures to stimulate economic growth. The

period over 2010-2011 saw the establishments of 5 new S-REITs, among which were the two

heavyweights backed by Temasek; the Mapletree Industrial Trust (raising approx. US$1 billion)

and the Mapletree Commercial Trust (raising US$ 1.6 billion).

As of June 2012, there were 26 publicly traded S-REITs with an overall market capitalisation of

approximate US$31 billion (Table 0.4). Singapore is the second largest REIT market in Asia

after Japan, accounting for 30.9% of the total size of the regional REIT market. As of June 2012,

9 of the 26 S-REITs were retail REITs, representing almost half (US$14.97 billion) of the S-REIT

market capitalisation (Figure 0.5). The industrial sector accounts for 8 S-REITs (US$9.08

billion), corresponding to 29% of the total market capitalisation.

Table 0.5 depicts the property profile and market capitalisation of public S-REITs as of June

2012. S-REITs had a significant profile in terms of portfolio size and market capitalisation. The

number of properties ranged from 2 (Indiabulls Properties) to 133 (Saizen REIT), averaging 28

properties per S-REIT. The largest S-REIT, in terms of market capitalisation, was CapitaMall

Trust (US$4.6 billion), while the smallest one was Saizen REIT (US$144 million). S-REITs also

have a significant position regionally, accounting for 4 of the top 10 Asian REITs, 8 of the top 20

and 16 of the top 50 in terms of market value. It has been considered the best REIT market in


Asia consistently for overall potential, property market growth, REIT opportunity and regulatory

support (Trust 2011).

Table 0.4: S-REITs by Property Sector: June 2012 Sector Market Cap. (US$ mln) No. of REITs Retail 14,972 9 Industrial 9,083 8 Office 2,393 2 Lodging 1,348 1 Specialty 1,273 2 Residential 1,066 2 Diversified 738 2 Total 30,873 26


Figure 0.5: S-REIT Segmentation


Retail49%

Industrial29%

Office8%

Lodging4%

Specialty4%

Residential4%

Diversified2%

Retail34%

Industrial31%

Office7%

Lodging4% Specialty

8%

Residential8% Diversified

8%


Table 0.5: Profile of Listed S-REITs: June 2012


REIT Name Date Sector Properties (US$ mln) Rank CAPITAMALL TRT. Jul-02 Retail 16 4,634 #4 ASCENDAS REIT Nov-02 Industrial 95 3,476 #5 CAPITACOMMERCIAL TRT. May-04 Retail 9 2,593 #8 SUNTEC REIT Dec-04 Retail 7 2,218 #9 K-REIT ASIA Apr-06 Office 8 1,930 #15 MAPLETREE LOGISTIC TRT. Jul-05 Industrial 96 1,811 #16 MAPLETREE IND. TRT. Oct-10 Industrial 70 1,444 #19 CDL HOSPITALITY TRT.S Jul-06 Lodging 12 1,348 #20 MAPLETREE COMERCIAL TRT. Apr-11 Retail 2 1,327 #21 FRASERS CENTREPOINT TRT. Jul-06 Retail 4 1,043 #29 FORTUNE REIT Aug-03 Retail 14 944 #31 STARHILL GLOBAL REIT Sep-05 Retail 6 936 #32 ASCOTT RESIDENCE TRT. Mar-06 Residential 48 922 #34 PARKWAY LIFE REIT Aug-07 Specialty 36 849 #38 CAPITARETAIL CHINA TRT. Dec-06 Retail 9 667 #48 LIPPO MALLS INDO. RETAIL Nov-07 Retail 15 610 #50 CACHE LOGISTICS TRT. Apr-10 Industrial 10 558 #53 CAMBRIDGE IND. TRT. Jul-06 Industrial 47 490 #55 SABANA SHARIAH IND. TRT. Nov-10 Industrial 20 467 #58 FRASERS COMMERCIAL TRT. Mar-06 Office 9 463 #60 ASCENDAS INDIA TRT. Aug-07 Industrial 5 450 #62 FIRST REIT TRT. Dec-06 Specialty 10 424 #63 PERENNIAL CHINA RETAIL TRT. Jun-11 Diversified 8 394 #64 AIMS AMP CAPITAL IND. Apr-07 Industrial 26 388 #66 INDIABULLS PROPERTIES Jun-08 Diversified 2 344 #73 SAIZEN REIT Nov-07 Residential 133 144 #88 TOTAL

717 30,873

Source: Author’s compilation from DataStream and various companies’ websites


Legal Form An S-REIT must be formed as a trust.

Minimum Initial Capital There is no minimum capital required for S-REITs.


Management Figure 0.6 illustrates a typical structure for a listed S-REIT. An S-REIT may be managed

externally or internally, but in practice all are externally managed. Under the SFA, the

management company is required to be a public company incorporated in Singapore. In

addition, the manager should have a physical office in Singapore and have minimal capital

funds of S$1 million (US$0.78 million).

Figure 0.6: Typical Structure for a Listed S-REIT


S - REIT

Unit Holders

Trustee Manager

Properties

Distributable Income

Trustee Fee Management Fee

Management Services

Holds Property on Trusts for Unit Holders

Distributions Identifies Investment Opportunities

Fee

Adviser



Hong Kong

Background In July 2003, The Hong Kong Securities and Future Commission (SFC) issued the Code on

Real Estate Investment Trusts (Code on REITs), setting up the foundation for the establishment

of Hong Kong Real Estate Investment Trusts (HK-REITs). The code was ratified in 2005 and

2007 for the formal regulatory operation of HK-REITs. In 2010, further amendments were made

to encourage the growth and attractiveness of HK-REITs to investors. The changes included

lifting the maximum borrowing ratios from 35% to 45% and allowing overseas investments and

new property sectors.

In November 2005, the Link REIT became the first Hong Kong REIT (HK-REIT) to be

established through the world’s largest initial offering at that time. At June 2012, there were 7

HK-REITs listed on the Hong Kong Stock Exchange (HKEx) with a total market capitalisation of

US$15 billion (Table 0.6). This saw Hong Kong being the third largest REIT market in Asia, after

Japan and Singapore. HK-REITs engaged across the retail (2 REITs), diversified (2), office (2)

and lodging (1) industry. The retail REITs dominated the market, accounting for almost 60% of

the total market capitalisation.

The profiles of HK-REITs at June 2012 are provided in Table 0.7. HK-REITs are often

established and supported by major property players in the country. Link REIT, the largest REIT

in Hong Kong and Asia, was established by the Hong Kong Housing Authority. At June 2012, it

had a market capitalisation of US$8.6 billion and the portfolio consisted of 180 properties with

an internal floor area (IFA) of approximately 11 million square feet (1 million sqm) of retail

space. Several other HK-REITs are also founded by leading property companies, such as

Prosperity REIT (Cheung Kong), Champion REIT (Great Eagle) and Sunlight REIT (Henderson

Land).

With many positive regulatory changes in recent years, Hong Kong is considered the second

most attractive REIT market in Asia, after Singapore, in terms of overall potential, property

market growth and regulatory support (Trust 2011). Hong Kong is also an important gateway for

investors to gain access to the mainland China’s property market. Many HK-REITs hold

substantial assets in mainland China. Hui Xian REIT (backed by Cheung Kong) was the first

RMB-denominated REIT in the world and established in April 2011. As of June 2012, it was the

second largest REIT in Hong Kong and ranked 6th in Asia. All of its investment properties are


located in mainland China; i.e. the Beijing Oriental Plaza and the Sheraton Shenyang Lido

Hotel. Other China-focus HK-REITs include the Regal REIT and the GZI/Yuexiu REIT.

Table 0.6: HK-REITs by Property Sector: June 2012 Sector Market Cap. (US$ mln) No. of REITs Retail 9,106 2 Diversified 3,386 2 Office 2,295 2 Lodging 714 1 Total 15,501 7

Figure 0.7: HK-REIT Segmentation


Retail59%

Diversified22%

Office15%

Lodging4%

Retail28%

Diversified29%

Office29%

Lodging14%

Table 0.7: Profile of Listed HK-REITs: June 2012


REIT Name Date Sector Properties (US$ mln) Rank LINK REIT Nov-05 Retail 180 8,631 #1 HUI XIAN REIT Apr-11 Diversified 2 2,880 #6 CHAMPION REIT May-06 Office 2 2,000 #11 REGAL REIT Mar-07 Lodging 6 714 #46 SUNLIGHT REIT Dec-06 Diversified 20 506 #54 YUEXIU REIT Dec-05 Retail 5 475 #57 PROSPERITY REIT Dec-05 Office 7 295 #78 TOTAL

222 15,501




Legal Form A typical structure of a HK-REIT is shown in Figure 0.8. A HK-REIT is a collective investment

scheme established as a unit trust. It may hold property directly or indirectly through SPVs.

However, such SPVs must be legally and beneficially owned by the HK-REIT and it must have

the majority ownership of the SPVs. Generally, no more than two layers of SPVs are allowed

unless specifically approved by the SFC.

As all HK-REITs must be listed, they are governed by the Code on REITs as well as the Listing

Rules issued by the HKEx. Unit holders of a HK-REIT cannot require redemption of their units,

but they can only exit via a sale of their units on the HKEx.

Minimum Initial Capital There is no minimum initial capital for HK-REITs.

Management The appointed management company can be internal or external. The management company

may choose to itself perform all the functions required of it under the Code on REITs or delegate

or contract out to one or more outside entities one or more of these functions. Furthermore, a

trustee that is functionally independent of the management company of the REIT must be

appointed, but may be part of the same corporate group if certain requirements are met.


Figure 0.8: Typical Structure of a Listed HK-REIT


Special Purpose Vehicles (SPVs)

The Properties

Unit Holders Trustee

Management Company

The H-REIT

Management Services

Fees

Owner of the SPVs, holding the Properties on Trust for Unit Holders

Holds Units Fees


Malaysia

Background The history of the Malaysian REIT (M-REIT) industry dated back to the establishment of listed

property trusts (LPTs) in 1989. However, it was not until 2005 that the Securities Commission of

Malaysia (SC) issued the Guidelines on Real Estate Investment Trusts (ordinary M-REITs) and

Guidelines for Islamic Real Estate Investment Trusts (Islamic M-REITs), providing the principal

legislations governing the official establishment of REITs in Malaysia. Both types of M-REITs

share similar regulatory structures and requirements, except that the Islamic M-REITs have to

comply with the Sharia requirements. Malaysia was the first country to introduce guidelines for

Islamic REITs at that time (Newell & Osmadi 2009).

As of June 2012, there were 15 M-REITs listed on the Bursa Malaysia (MYX), with a total

market capitalisation of US$5 billion (Table 0.8). This saw Malaysia being the fourth largest

REIT market in Asia. However, the REIT industry in Malaysia was still relatively small as

compared to those in Japan, Singapore and Hong Kong. Three of the largest M-REITs; Pavilion

REIT (US$1.14 billion), Sunway REIT (US$1.09 billion) and CapitaMalls Malaysia Trust

(US$839 million), were among the top 50 REITs in Asia in terms of market value. The three

Islamic M-REITs were Axis (US$390 million), Al-Hadharah Boustead (US$351 million) and

Al’Aqar Healthcare REIT (US$274). The number of properties in M-REIT portfolios ranged from

2 to 29, averaging 10 properties per M-REIT.


Table 0.8: Profile of Listed M-REITs: June 2012


REIT Name Date Sector Propertie

s (US$ mln) Rank PAVILION REIT Dec-12 Retail 2 1,135 #26 SUNWAY REIT Jul-10 Diversified 8 1,087 #27 CAPITAMALLS MALAYSIA TRT. Jul-10 Retail 4 839 #40 AXIS REIT Aug-05 Office 29 390 #65 STARHILL REIT Dec-05 Retail 10 383 #67 AL-HADHARAH BOUSTEAD REIT Feb-07 Specialty 12 351 #71 AL’AQAR HEALTHCARE REIT Aug-06 Specialty 19 274 #80 UOA REIT Dec-05 Office 6 181 #83 AMANAHRAYA REIT Feb-07 Diversified 15 161 #86 AMFIRST REIT Dec-06 Office 8 156 #87 HEKTAR REIT Dec-06 Retail 5 141 #90 QUILL CAPITAL TRT. Jan-07 Office 10 139 #91 TOWER REIT Apr-06 Office 3 123 #94 ATRIUM REIT TRT. Apr-07 Industrial 5 44 #109 AMANAH HARTA TANAH PNB Sep-01 Diversified 11 33 #114 TOTAL

147 5,436


Based on the types of properties, M-REITs were categorised as retail (4 REITs), diversified (3),

office (5), specialty (2) and industrial (1) sector (Table 0.9). Retail M-REITs comprised the

largest segmentation, accounting for 46% of M-REIT market capitalisation (Figure 0.9). This

group was followed by the diversified and office REITs, representing 25% and 18% of the total

market value respectively.

Table 0.9: M-REITs by Property Sector: June 2012 Sector Market Cap. (US$ mln) No. of REITs Retail 2,497 4 Diversified 1,282 3 Office 988 5 Specialty 625 2 Industrial 44 1 Total 5,436 15



Figure 0.9: M-REIT Segmentation



Legal Form REITs in Malaysia have to be registered as unit trusts. Malaysian trustees must be approved by

the SC (Figure 0.10). M-REITs can be listed or unlisted. A listed M-REIT is subject to the listing

requirements of the MYX. Unlisted M-REITs are opened-ended, meaning there is a mandatory

requirement for the management company, upon the proper request of an investor, to

repurchase units issued to unit holders.

Minimum Initial Capital The minimum initial capital of an M-REIT is MYR100 million (US$32 million). For subsequent

offerings, the minimum size of the funds is MYR25 million (US$7.8 million).

Management An M-REIT must be externally managed and administered by a management company

approved by the SC. Foreigners can hold up to 70% of the equity of the management company.

At least 30% of the equity of the management company must be held by bumiputra (ethnic

Malay) shareholders. The properties held by the trust must be managed by a qualified property

manager.

Retail46%

Diversified24%

Office18%

Specialty11%

Industrial1%

Retail27%

Diversified20%Office

33%

Specialty13%

Industrial7%


An Islamic M-REIT is subject to similar requirements as above, plus a Shariah committee or a

Sharia to ensure that any asset acquired is Shariah-compliant.

Figure 0.10: Typical Structure for an M-REIT

REIT

Authorised Investments

Property Management Companies

REIT Managers Trustee

Unit Holders


Dividends and other distribution

Trustee Fee Management

Fee

Acts on behalf of Unit Holders

Management Service

Property Management

Service

Property Management

Fee


Thailand

Background The concept of real estate investment trusts in Thailand (Thai-REIT) was introduced in 2002, as

a recovery vehicle for distressed properties after the 1997 Asian financial crisis. The Thai

version of a REIT is known in the country as Listed Property Funds for Public Offering (PFPO).

This is a type of mutual fund and is listed on the Stock Exchange of Thailand. The law

regulating the PFPO is the Securities and Exchange Act B.E. 2535, enacted in 1992. Although

PFPO was initially established as a resemblance of the REIT structures in the US and Australia,

the PFPO code is considered to be more rigid than other REIT regulations overseas.

In October 2010, the Securities and Exchange Commission of Thailand (TSEC) announced that

it has approved the new REIT regulatory framework, under the Trust for Transactions in Capital

Market Act B.E. 2550 (2007). The new legislations aimed to follow international REIT practices

and provide greater flexibility for REITs as compared to the current PFPO code. There will be

less restriction on investment activities. More importantly, the maximum total borrowing of Thai-

REITs will be raised to 50% of NAV, as opposed to 10% in the case of PFPO. This will give

Thai-REITs more flexibility to acquire additional properties and to optimise their capital structure.

These changes had been well received by property trust managers as well as institutional

investors. The current PFPO will be able to convert into the REIT. However, in March 2011, the

government announced that the enactment of the new Thai-REIT framework will be delayed

until the Revenue Department clarifies the corporate income tax status of institutional investors.

The first Thai-REIT, UOB Apartment Property I Leasehold, was listed on the SET in 2003. As of

June 2012, there were 37 listed Thai-REITs investing across retail (5), industrial (8), office (6),

lodging (6), residential (7) and diversified (5) property sectors (Table 0.10). Even though small in

number (5), the retail REITs accounted for the almost half (44%) of the total market

capitalisation of US$4.1 billion, followed by industrial (23%) and office (12) REITs (Figure 0.11).

The profile of listed Thai-REITs as of June 2012 can be seen in Table 0.11. Thai-REITs are

characterised by small size, with an average market capitalisation of US$111 million and lack of

property exposure. The average number of properties in a Thai-REIT portfolio is only 8, with the

majority of them (11) holding single property portfolios. The largest Thai-REIT in terms of the

number of properties is the Ticon Property Fund, with 174 assets in the industrial property

sector.


Table 0.10: Thai-REITs by Property Sector: June 2012 Sector Market Cap. (US$ mln) No. of REITs Retail 1,817 5 Industrial 937 8 Office 509 6 Lodging 395 6 Residential 275 7 Diversified 177 5 Total 4,111 37


Figure 0.11: Thai-REIT Segmentation


Retail44%

Industrial23%

Office12%

Lodging10%

Residential7%

Diversified4%

Retail13%

Industrial22%

Office16%

Lodging16%

Residential19%

Diversified14%


Table 0.11: Profile of Listed Thai-REITs: June 2012


REIT Name Date Sector Properties (US$ mln) Rank CPN RETAIL GROWTH LH Aug-05 Retail 3 729 #44 TESCO LOTUS RETAIL GROWTH Mar-12 Retail 17 666 #49 SAMUI AIRPORT PROP. FD. Nov-06 Industrial 1 333 #75 TICON PROP. FD. May-05 Industrial 174 328 #76 QUALITY HOUSES LH Dec-06 Office 3 234 #81 FUTURE PARK LH Dec-06 Retail 1 212 #82 MAJOR CINEPLEX Jul-07 Retail 2 124 #92 DUSIT THANI FH & LH Jan-11 Lodging 3 123 #93 PRIME OFFICE LH Apr-11 Office 2 118 #95 WHA PREMIUM FACTORY Dec-10 Industrial 3 108 #97 LAND AND HOUSE PROP. FD. Apr-12 Residential 3 104 #98 TALAAD THAI LH Nov-10 Diversified NA 91 #99 CENTARA HOTEL & RESORT Oct-08 Lodging 1 87 #100 THAI RETAIL INV. FD. Jul-11 Retail 1 87 #101 TPARK LOGISTICS PROP. FD. Dec-09 Industrial 15 86 #102 MILLIONAIRE PROP. FD. Mar-05 Office 1 73 #103 MFC AMAZING A-LA ANDAMAN Nov-11 Lodging 2 67 #104 THAI COMMERCIAL INV. Jun-10 Office 4 63 #105 QUALITY HOSPITALITY LH Apr-08 Lodging 1 55 #106 GOLD PROP. FD. May-07 Residential 1 50 #108 LUXURY RE Jun-08 Lodging 1 39 #111 MFC-NICHADA THANI Aug-05 Residential 2 35 #112 MULTI-NATIONAL RESIDENCE Jun-08 Residential 3 33 #115 NICHADA THANI PROP. FD. 2 Apr-09 Residential 2 30 #116 BANGKOK COMMERCIAL PROP. Nov-03 Diversified 2 29 #117 TU DOME RESIDENCE COMPLEX Dec-06 Diversified 3 26 #118 MERCURE SAMUI PROP. Aug-10 Lodging 1 24 #119 MFC-STRATEGIC STORAGE FD. Aug-09 Industrial 4 22 #120 THAI IND. FD. 1 Jun-05 Industrial 8 21 #121 SALA @ SATHORN PROP. FD. Aug-09 Office 1 21 #122 TRINITY PROP. FD. Mar-11 Diversified 1 21 #123 SUB SRI THAI May-11 Industrial NA 21 #124 101 MONTRI STORAGE PROP. Aug-09 Industrial 1 18 #125 PROP. PERFECT FD. Mar-08 Residential 2 14 #129 URBANA PROP. FD. Oct-07 Diversified 1 10 #130 UOB APARTMENT PROP. Oct-03 Residential 1 8 #132 JC LH PROP. FD. Jan-07 Office 1 NA NA TOTAL

272 4,111

Source: Author’s compilation from DataStream and various companies’ websites



Legal Form The current Thai-REITs are established as mutual funds. However, under the new regime, Thai-

REITs will be closed-ended trusts with no maturity. The Thai-REITs must be listed on the SET

within 60 days of completion or the date they are offered to investors.

Management The management company, appointed by the trustee, must be licensed by the Ministry of

Finance and regulated by the Office of Securities and Exchange Commission of Thailand. The

management company and the trustee cannot be related.

Minimum Initial Capital A capital of minimum ฿500 million (US$3.2 million) is required.


Taiwan

Background In Taiwan, the Real Estate Securitisation Act (RESA) came into effect in 2003 and was last

amended in 2009. Fubon No. 1 was the first Taiwanese REIT (T-REIT), which was established

on March 2003 and listed on the Taiwanese Stock Exchange (TWSE) on July 2006. To date, a

total of eight T-REITs have been launched and floated on the TWSE. However, two T-REITs

have been delisted since 2011 (i.e. Trident REIT and Kee Tai REIT).

Table 0.12 shows the market break-up of the current T-REITs as of June 2012. There were six

currently listed T-REITs with a total market capitalisation of US$2.4 million, accounting for 2.5%

of the Asian REIT market. This saw Taiwan having the second smallest REIT market in Asia

(#6/7 market), above only South Korea. Among the 6 T-REITs, 4 of them invested in the

diversified property sector, representing 73% total market capitalisation, while the other 2

invested in offices, accounting for the remaining 27% of the T-REIT market capitalisation (Figure

0.12).

As seen from Table 0.13, all of the currently listed T-REITs were launched prior to May 2007; no

new T-REITs have been launched subsequently as of June 2012. T-REITs have relatively small

capitalisation, averaging US$415 million and small property portfolios ranging from 3 to 6

properties.

Table 0.12: T-REITs by Property Sector: June 2012 Sector Market Cap. (US$ mln) No. of REITs Diversified 1,830 4 Office 661 2 Total 2,491 6



Figure 0.12: T-REIT Segmentation


Table 0.13: Profile of Listed T-REITs: June 2012


REIT Name Date Sector Properties (US$ mln) Rank CATHAY NO.1 REIT Jul-06 Diversified 3 828 #41 SHIN KONG NO.1 REIT Jul-06 Diversified 6 487 #56 CATHAY NO.2 REIT Oct-06 Office 3 347 #72 FUBON NO.1 REIT Jul-06 Diversified 4 338 #74 FUBON NO.2 REIT Jul-06 Office 3 313 #77 GALLOP NO.1 REIT May-07 Diversified 3 177 #84 TOTAL 22 2,491

Sources: Author’s compilation from DataStream and various companies’ websites


Legal Form The RESA allows two structures for T-REITs; real estate investment trusts (REITs), following

US model, which require the establishment of a mutual fund; and real estate asset trust (REAT),

following the Japan’s regime of special purpose trusts. Both types of T-REITs are established as

trusts and administered by a trustee. A trustee is an institution that may manage and dispose

the trust property and raise public offerings or private placements the in the shares of T-REITs.

In practice, all trustees have been local banks or branch offices of foreign banks in Taiwan.

Diversified73%

Office27%

Diversified67%

Office33%


Management Under the RESA, the manager is external and must be appointed by the trustee. A manager is

not required to be specially licensed or approved.

Minimum Initial Capital The minimum initial capital ranges from NT$300 million (US$10 million) to NT$2 billion (US$67

million) depending on the scope of business engaged by the trust. The minimum paid-in capital

required for a T-REIT engaging only in REIT or both the REIT and REAT business under the

RESA is NT$1 billion (US$67 million) and the minimum paid-in capital for a trust company

engaging only in REAT business is NT$300 million (US$67 million).


South Korea

Background The ground work for REITs in South Korea (K-REITs) was laid in 2001 by the amendment of the

Real Estate Investment Company Act (REICA). The introduction of REITs was a part of the

government’s reforms to create an effective scheme for troubled property companies to spin off

their real assets. Despite high expectations, the K-REIT market attracted little attention from

both property companies and investors due to a burdensome legal process.

In 2007, the Korean Ministry of Construction and Transportation revised the REICA in an

attempt to further simplify regulations governing the establishment and operation of K-REITs.

Major elements of the revision included the reduction of restrictions on borrowing, initial capital

requirements and lengthy approval processes. Currently, there are 3 REIT regimes in South

Korea; (1) corporate restructuring (CR) REITs, self-managed (SM) REITs and manager-

entrusted (ME) REITs.

The first listed K-REIT was the Kyobo-Meritz 1 CR-REIT, launched in April 2002. However, it

has since been delisted from the Korea Stock Exchange (KRX). As of June 2012, there were 7

active K-REITs in the diversified (4), office (2) and residential (1) property sector (Table 0.14).

Despite having an early start, the K-REIT industry was still lagging behind its regional

counterparts. As of June 2012, it was the smallest REIT market in Asia, with a total market

capitalisation of just US$465 million, accounting for less than 0.5% of the total Asian REIT

market capitalisation. The diversified sector made up the largest segmentation, representing

74% of K-REIT total market capitalisation (Figure 0.13).

Table 0.14: K-REITs by Property Sector: June 2012 Sector Market Cap. (US$ mln) No. of REITs Office 93 2 Diversified 81 4 Residential 10 1 Total 184 7



Figure 0.13: K-REIT Segmentation


Table 0.15: Profile of Listed K-REITs: June 2012


REIT Name Date Sector Properties (US$ mln) Rank KOCREF 15 CR-REIT Jan-10 Office 1 52 #107 KOCREF REIT 8 Jun-06 Office 2 41 #110 TRUS Y 7 REIT Sep-11 Diversified NA 34 #113 K-TOP REIT Jan-12 Diversified NA 18 #126 GOLDEN NARAE RE DEV. May-10 Diversified NA 15 #127 KWANG HEE DEV. REIT Jul-11 Diversified NA 14 #128 E-COREA REIT Mar-11 Residential NA 10 #131 TOTAL

3 184

Sources: Author’s compilation from DataStream and various companies’ websites


Legal Form A K-REIT must be established as a stock corporation (chusik hoesa) under the Korean

Commercial Code and REICA. CR K-REITs are joint stock companies that have finite lives of

five years and must be dissolved when the period ends, while the ordinary K-REITs, SM and

ME, are paper companies with infinite lives. K-REITs must be established in Korea.

Office51%Diversified

44%

Residential5%

Office29%

Diversified57%

Residential14%


Minimum Initial Capital The minimum initial capital of ₩500 million (US$0.4 million) is required for obtaining a business

license from the Ministry of Land, Transport and Maritime Affairs (MOLTM). Within 6 months

after the license is granted, the equity capital should be increased to ₩7 billion (US$6 million)

for the SM K-REITs and ₩5 billion (US$4.3 million) for the CR and SM K-REITs.

Management The management can be either internal or external.

Prospective Asian REIT Markets

India In December 2007, the Securities and Exchange Board of India (SEBI) issued the long awaited

draft regulations on Real Estate Investment Trusts for public comments. Based on the public

consultation, the SEBI determined that Indian REITs should be established in the form of mutual

funds, of which the legal framework has existed. In April 2008, the SEBI further amended the

existing SEBI Mutual Fund Regulation to incorporate Real Estate Mutual Funds (REMFs), the

Indian model of REITs. Currently, there is as yet any REMF to be established in India. However,

there is a number of Real Estate Private Equity Funds (REPEFs) providing access to India’s

property market.

Pakistan A REIT framework has been introduced in Pakistan in 2008, following the enactment of the Real

Estate Investment Trust Regulation by the Securities and Exchange Commission of Pakistan

(SECP). REITs in Pakistan are established as closed-ended trusts. The requirements for

Pakistan REITs are very similar to those in other Asian REIT markets. For example, Pakistan

REITs are also required to distribute not less than 90% of their annual income to unit holders.

As long as the 90% minimum distribution obligations are met, Pakistan REITs will be subject to

income tax exemption. In addition, the REIT regulations also require that each REIT must have

a minimum size of PKR2 billion (US$21 million) and the management company must hold at

least 20% in each REIT.

In March 2009, the SECP granted permission to two REIT management companies. Among

four applications received,f only two were approved, whereas the other two were rejected due to


their failure to meet the requirements. The two approved managers were Arif Habib REIT

Management Company Ltd. and AKD REIT Management Company Ltd. Both companies have

filed a number of REIT schemes with the SECP for its approval.

The Philippines The Real Estate Investment Trust Act of 2009, also known as the Republic Act 9856, was

enacted in December 2009, providing the legal base for Philippine REITs (P-REITs). The REIT

Act became effective in February, 2010. In April 2010, the Securities and Exchange

Commission of the Philippines (PSEC) released a draft of the Implementing Rules and

Regulations in relation to the REIT Act 2009.

The legal structure of P-REITs follows that of J-REITs, where they will be formed as

corporations with shares of stocks instead of unit trusts. P-REITs are required to have a

minimum paid-up capital of ₱3 million (US$72,000) and at least 1,000 public shareholders. The

Act further advises that at least 75% of a P-REIT’s assets must be in income-generating

property. With respect to leveraging, borrowings shall not exceed 75% of the market value of

each P-REIT. Furthermore, 90% of distributable income must be allocated to shareholders.

In addition to the general requirements, which are in line with international standards, the

Philippine’s regulators has imposed a number of highly stringent rules in terms of ownership and

taxation. In particular, the public ownership of P-REITs is required to be at least 40% during the

first two years from listing and 67% by the third year. The Bureau of Internal Revenue (BIR)

further insists that P-REITs could only receive pass-through status if they maintain public

ownership of at least 67% and distribute at least 90% of their distributable income. Additionally

to the minimum ownership, the BIR also requires a 12% value-added tax on the initial transfer of

property assets in P-REITs.

These strict rules have been publicly criticised by property market participants. A number of

major property developers in the country, including SM Prime, Ayala Land and Megaworld, have

postponed their plans for P-REIT initial offerings. Consequently, the Philippines was placed

second last, above only Thailand, in Asia in terms of overall potential, REIT opportunity and

regulatory support, despite having high property market growth potential (Trust 2011).


China As at June 2012, China does not have any legal framework for REITs. The first attempt to

establish a REIT model in China (C-REIT) was in 2004 when the China Banking Regulatory

Commission (CBRC) issued a consultation draft governing companies that engage in REITs

(Clifford Chance 2010). In 2007, two local companies Union Trust & Investment and CITIC

Securities, were given permission by the People’s Bank of China (PBC) to establish pilot

schemes. However, these pilot programmes were later abandoned due to the 2007 GFC and

fear of the Chinese property bubble.

In December 2008, the Chinese government reconsidered the introduction of C-REITs to the

financial market. The PBC and other central government authorities, including the CBRC and

the China Securities Regulatory Commission (CSRC), have been drafting rules and

administrative guidelines for pilot C-REITs. Local governments in Beijing, Tianjin, Shanghai and

Shenzhen have expressed their interest to participate in the pilot programmes formulated by the

PBC. In 2009, it was reported that a number of listed companies in Shanghai, including

Shanghai Zhangjiang Hi-Tech Park Development, Shanghai Jinqiao Export Processing Zone

Development, Shanghai Waigaoqiao Free Trade Zone Development and Shanghai Lujiazui

Finance & Trade Zone Development, have submitted their applications to the State Council for

approval. However, no pilot C-REIT scheme has been endorsed up to date.

The significance of Asian REITs Since the establishment of the first REIT in 2001, the Asian REIT market has grown significantly

to reach its peak at U$81 billion in May 2007 (Figure 0.1). As the GFC unfolded, the total market

value plunged by half to its lowest point at US$38 billion in October 2008. However, the

subsequent period after the GFC has witnessed a robust recovery of the market, supported by

strong fiscal stimulus and quantitative easing measures from governments across Asia. Taking

advantage of the low interest rates and abundant capital, Asian REITs have intensified new

public offerings and acquisition activities during 2009 – 2011. Total market capitalisation has

almost trebled from its trough to an all-time high at US$106 billion in April 2012, well above the

pre-GFC’s level.


Figure 0.1: Evolution of Asian REIT Markets: October 2001 – June 2012

Source: Author’s complitation from DataStream

The strong recovery of Asian REITs after the GFC is further shown in Table 0.1. It can be seen

that Asian REIT markets were stronger performers than the mature REIT markets of the US, UK

and Australia. As of the first quarter of 2012, the Asian REIT markets, except Japan, have

recovered from the previous 5-year’s levels, while the mature markets were still in negative

territory.

As of June 2012, there were 133 REITs across Asia with a combined market value of US$100

billion. Table 0.2 and Figure 0.2 depict the significance of Asian REITs within a regional and

global context. Currently, the Asian REIT market is dominated by the three developed markets

GFC

0

20

40

60

80

100

120

US$

bill

ion

Japan Singapore Hong Kong Malaysia Taiwan Thailand South Korea

Table 0.1: Asian REIT Performance: Q1 2012 YTD 1 Year 3 Year 5 Year

Japan 12.2% -0.2% 18.7% -5.5% Singapore 15.8% 1.3% 37.6% 0.9% Hong Kong 4.1% 14.5% 31.1% 12.0% Malaysia 3.4% 20.2% 13.0% 4.1% Taiwan 12.3% 45.0% 30.9% 13.8% US 10.7% 12.9% 43.4% -0.3% UK 14.3% -5.4% 24.1% -18.1% Australia 8.4% 2.3% 31.4% -9.4%

Source: S&P (2012)


of Japan, Singapore and Hong Kong, making up more than 90% of the total market

capitalisation. Japan is still the largest REIT market in Asia, representing 41% of the regional

market value. However, there has been strong competition coming from Singapore (31%) and

Hong Kong (15.5%), as they position themselves as regional hubs for offshore REIT listings.

The last few years have also seen the emerging markets of Malaysia, Thailand, Taiwan and

South Korea implementing significant regulatory changes in order to catch up with the leading

players.

Within a global context, Asia REITs also have a significant profile, adding up to 12% of the

global REIT market as of June 2011. Japan (#5), Singapore (#7) and Hong Kong (#8) were

among the top 10 REIT markets globally in terms of market size.

Table 0.2: Significance of Asian REITs: June 2012

Country No. of REITs

Mkt Cap. (US$ bln)

% of Asia REITs

Asia REIT Rank

% of Global REIT*

Global REIT Rank*

Japan 35 42.3 41.9% #1 5.8% #5 Singapore 26 30.9 30.6% #2 3.8% #7 Hong Kong 7 15.5 15.4% #3 1.9% #8 Malaysia 15 5.4 5.4% #4 0.5% #12 Thailand 37 4.1 4.1% #5 0.1% #15 Taiwan 6 2.5 2.5% #6 0.3% #20 South Korea 7 0.2 0.2% #7 <0.1% #22 Asia Total 133 100.9 100.0% 12.5%

*As of September 2011. Sources: Author’s compilation from DataStream, Macquarie (2011)


Figure 0.2: Asian REIT Market Share

Table 0.3 and Figure 0.3 present the break-down of Asian REIT assets by property types. In

terms of market value, retail property was the largest REIT sector in Asia, followed by the

diversified and office sector. As of June 2012, there were 22 retail REITs with a combined

market value of US$32.8 billion, representing 33% of the total Asian REIT market. Among the

133 listed REITs, 36 REITs held diversified property portfolios with a total equity value of

US$22.5 billion (23%), while 26 REITs invested in office buildings worth US$21.6 billion (22%).

Asian REITs also invest across industrial (US$12.2 billion; 12%), residential (US$6.3 billion;

6.3%), lodging (US$2.7 billion; 2.7%) and specialty (US$1.9 billion; 1.9%) properties.

Table 0.3: Asian REIT Market by Property Sector Sector No. of REITs Mkt Cap. (US$ mln) % of Total Retail 22 32.8 32.8% Diversified 36 22.5 22.6% Office 26 21.5 21.5% Industrial 19 12.2 12.2% Residential 17 6.3 6.3% Lodging 9 2.7 2.7% Specialty 4 1.9 1.9% Total 133 100.0 100.0%

Source: Sources: Author’s compilation from DataStream

Japan41.9%

Singapore30.6%

Hong Kong15.4%

Malaysia5.4%

Thailand4.1%

Taiwan2.5%

South Korea0.2%


Figure 0.3: Asian REIT Market Break-down by Property Type

Summary This paper has provided an overall description of the evolution of REITs globally, the

development of REITs in Asia, as well as the significance of Asian REITs within a global

context. Since its inception in the 1960s in the US, the REIT marketplace has grown

dramatically. REITs now play an important role in the commercial property market as well as the

broader economy. The success of REITs in the US has led to their adoption around the world.

As of 2011, there were more than 500 listed REITs across 22 markets, with a combined market

capitalisation of US$815 billion (Macquarie 2011).

In Asia, REITs have been introduced during the early 2000s. At the moment, REIT regulations

have been developed across Japan, Singapore, Hong Kong, Malaysia, Taiwan, Thailand and

South Korea. Table 0.1 provides a legislation summary of the current REIT regimes in Asia.

Other major Asian economies including India, Pakistan, the Philippines and China are also in

progress towards setting up their own REIT markets. The rapid development of the REIT sector

in Asia is underpinned by strong economic growth, increased competitiveness, transparency

and reduced corruption levels. Recent years have also seen the industry enjoying many positive

regulatory changes and government support.

Retail32.5%

Diversified23.2%

Office21.4%

Industrial12.1%

Residential6.2%

Lodging2.7%

Specialty1.9%


At the moment, there are 133 Asian REITs with a total market capitalisation of US$100 billion,

representing 12% of the global REIT market. The post-GFC period has seen robust recovery of

the Asian REIT industry, outperforming those in the US and UK. Asian REIT markets provide

institutional investors effective channels to tap into the huge potential of the commercial

property markets in the region. In addition, special products such as Islamic REITs and RMB-

denominated REITs also create new investment opportunities and diversification tools for global

investors. As the prospective REIT markets, in particular those of India and China, are expected

to be launched in the next couple of years, the medium and long-term outlook for Asian REITs

remains very optimistic.


Table 0.1: Asian REIT Legislation Overview JAPAN SINGAPORE HONG KONG SOUTH KOREA TAIWAN THAILAND MALAYSIA Structure Trust or corporate

(listed REITs are all corporations)

Collective investment scheme (Unit trust) or corporate

Unit trust Corporate-Restructuring, Entrusted Management, Development-Specialised, Self-Managed

Trust (Real estate asset trust or investment trust)

Closed-end mutual fund

Unit trust

Management structure

External External Internal/ External Internal/ External Internal/ External External External

% invested in real estate

For listed J-REIT, at least 75% of assets must be invested in real estate

At least 70% of deposited property should be invested in real estate or real estate-related assets

Only invest in real estate

At least 70% in real estates or corporate restructuring related properties

Cash, government bonds, property, property-related rights, beneficiary securities or ABS issued under Real Estate Securitization Act/ Financial Asset Securitization Act (RESA/ FASA) must form at least 75% of the NAV

Must invest at least 75% of NAV in property

At least 50% of a fund’s total asset value must be invested in real estate and/or single- purpose companies at all times

Geographical restrictions

No restriction under the Investment Trust and Investment Company Act, but no overseas acquisitions have been made as the requirements on real estate appraisal of overseas

No No No No restriction under the RESA; subject to approval

Thailand only No restriction basically, subject to approval from SC and relevant authorities


Table 0.1: Asian REIT Legislation Overview properties are ambiguous.

Property developments

Restricted – at least 50% of total assets are income producing and unlikely be sold within one year

Property developments and investments in uncompleted projects should not exceed 10%

Prohibited, but H-REIT may acquire uncompleted units comprising less than10% NAV

Allow Allow for urban renewal, infrastructure or public amenities construction; investments should not exceed 15% of asset value

May acquire properties over 80% completed, but prohibited to invest in dormant land (for PFPO)

Prohibited, but may enter into conditional forward purchase agreement

Leverage No restriction Over 35% of total assets permitted with disclosed credit rating (capped at 60%)

Capped at 45% of gross asset value

REITs are permitted to have exceptional borrowing up to 1000% of equity capital, upon special approval of shareholders

Varies based on credit rating; 50% of total asset value for REITs with credit rating of twAA or above

Not more than 10% of NAV

50% of total asset value (revised from 35%)

Dividend payout

At least 90% of distributable income to qualify for tax deduction

At least 90% so as to enjoy exemption from paying corporate tax

At least 90% of annual net income after tax

At least 90% At least 90% of distributable income

At least 90% of net profits

Not specified in the M-REIT guideline

Source: CBRE (2010)


References A full reference list will be provided upon requested.

Contact Author (Alex) Anh Khoi PHAM

Email: [email protected]

Alex is an investment specialist with solid academic and industry experience. He is specialised in property econometrics, asset allocation, portfolio management and investment analysis.

Disclaimer: This paper is an amended extract from the author’s PhD thesis titled “An empirical analysis of Real Estate Investment Trusts in Asia: Structure, Performance and Strategic Investment Implications”. No part from this paper may be copied, reproduced, re-published, uploaded, posted, transmitted, or distributed in any way without permission from the author.

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