There is little doubt that the Singapore Exchange (SGX), Asia’s self-described Reit champion, is miles ahead of the competition when it comes to volumes.
In the past five years, equity fundraising by Reits on SGX alone have beat out the combined volumes of all other Asian exchanges save for 2012, when Singapore raised $1.9bn versus $2.1bn for Thailand, Hong Kong and Malaysia, according to Dealogic. Its track record has been unassailable since — last year, Reits on SGX posted $2.8bn in volumes against $1.0bn for the rest of the region.
Of the top 20 Reit-related equity fundraisings in Asia ex-Japan ex-onshore China since 2012, only four have come from a non-Singaporean exchange.
So it makes sense that news of Reits looking beyond Singapore have spurred discussions about its future. Two issuers, namely a subsidiary of Indonesian conglomerate Lippo Karawaci and China’s state-owned Tianfang Hospitality Reit, went against the grain when they decided to conduct IPOs in Indonesia and Hong Kong, respectively. Tianfang had sought a SGX listing at one point, but switched to Hong Kong.
Both, however, had their own reasons for choosing an exchange outside of Singapore — meaning bankers concerned about a loss of Reit business on SGX can rest easy.
For starters, that Lippo should pursue a domestic Reit should come as no surprise, with Indonesia having made great strides in pushing through Reit reforms last year. But the initial excitement has given way to the realisation that political and regulatory roadblocks still stand in the way of Reit issuance in the country, where there are only two in the asset class.
Other than Lippo, local groups such as Bumi Serpong Damai, Ciputra, Pakuwon Jati and Summarecon Agung are all expected to join the Reit bandwagon. But an impasse remains in the form of disputes between the federal and state government on a crucial tax reduction plan that is key to making domestic Reit offerings viable.
It is also unlikely that the Lippo-linked Reit, Dire Bowsprit Commercial & Infrastructure, would pave the way for more such deals. Dire Bowsprit, which is running the bookbuild by itself and has made little effort to spread the word among international banks, looks to be a highly Indonesia-centric offering.
The same can be said of Tianfang which, as a Chinese state-owned entity, will not stray too far from its roots and investors. By the same token, Hong Kong remains an unattractive destination for Reits given investors’ preference for growth stocks over yield, and the perception that the quality of Reit assets in the city pales in comparison to Singapore.
In addition, SGX has the institutional framework in place to ensure it keeps Reits coming for years. As well as tax incentives, the government shook up its stamp duty rules in 2015, which increased the cost of acquiring domestic assets but equally encouraged Reits to expand outside of Singapore.
And expand they have. Last year Frasers Logistics & Industrial Trust listed on SGX for S$903m ($640m), with the IPO 6x covered. All its properties are located in Australia. This week, Ascott Residence Trust launched a S$443m rights issue to buy its first property in Frankfurt, as well as another property in Hamburg and Singapore. All that activity has been a boon for ECM and event-driven financings.
Even if interest rates rise this year, most S-Reits have prudently locked in fixed rate funding at current rates and their shares have priced in several hikes, so the sector has limited downside. And for issuers, few exchanges offer a better set of Reit comparables than SGX.
As competition in the capital markets goes, and if other markets get their act together, SGX’s hold on Asian Reits may not last forever. But anyone hoping to steal a march on Singapore will have to do much, much better.