Asian REIT market to face more trouble

By Daryl Loo

SINGAPORE (Reuters) - Asia's real estate investment trust (REIT) industry is expected to face more turmoil for the rest of the year as financing troubles haunt weaker players and lukewarm investor interest keeps a lid on new stock offerings.

Asian REITs excluding Australia have lost 16 percent of their market value in the past year, down to about $70 billion, as fears of a global recession and a credit squeeze dampened investors' appetite for risk, leading them to demand ever higher yields.

"Real estate continues to blow-out in terms of credit spreads. Risk appetite is down sharply and IPO sentiment remains poor," said UBS head of Asia real estate Mark Ebbinghaus, adding that the poor conditions will remain till early next year.

Where developers were lining up in the last five years to spin off new REITs and monetize their property assets, most have now postponed or scrapped the plans.

Earlier this month, Japan's second-largest home builder, Daiwa House Industry Co (1925.T: Quote, Profile, Research, Stock Buzz), scrapped a $562 million IPO for its REIT unit due to weak investor demand, prolonging an eight-month IPO drought in Japan's struggling REIT market.

Indiabulls Properties Investment Trust IBPI.SI, Singapore's first REIT IPO in seven months, tanked on its June 11 debut and now trades about 10 percent below its IPO price. The poor response led India's top two developers, DLF Ltd (DLF.BO: Quote, Profile, Research, Stock Buzz) and Unitech Ltd (UNTE.BO: Quote, Profile, Research, Stock Buzz), to also drop plans for similar listings.

"For the time being, REITs are off the agenda for us. Its going to be tough for REITs probably over a year of 18 months, which is probably as far as anyone can see for the moment," said Andrew Bird, Chief Investment Officer of AMP Capital Investors.

AMP Capital, the investment unit of Australia's top pension fund manager AMP Ltd (AMP.AX: Quote, Profile, Research, Stock Buzz), this year scrapped plans to list its $220 million worth of Singapore industrial properties, and now prefers to focus on unlisted wholesale funds, Bird said.

Some analysts are taking a contrarian view to the situation, arguing that the current mismatch between investors' perception of risks, and the real under-supply situation in many Asia property markets provides an opportunity for bargain buys.

CONSOLIDATION

In the boom years for Asian REITs, before the U.S. subprime mortgage crisis caused a liquidity crunch to set in mid-2007, many of the trusts borrowed heavily to fund new acquisitions in a bid to boost their yields and share prices. Investors have since sold some of these highly-geared REITs.

"Anyone geared above 50 percent will continue to be punished. The only way they can de-gear is by raising equity, but if they do this, it would have to be at quite large discounts," said Michael Smith, Goldman Sachs' head of Asia real estate.

The financing constraints means more REITs will be taken over by competitors over the next 18 months, said Smith.

"Consolidation will definitely occur. There are a few REITs available here in Singapore, and as more distress sets in, they may be taken private or merged into others," he said.

In Singapore, retail mall owner Macquarie Prime REIT MMPR.SI has said it may sell assets or go private after main shareholder Macquarie (MQG.AX: Quote, Profile, Research, Stock Buzz) received offers for its stake, while Allco Commercial REIT ALCR.SI is selling its Australian assets to meet debt financing needs.  Continued...