Thursday, December 30, 2010

GuocoLand eyes its Reits of passage

(SINGAPORE) Malaysian tycoon Quek Leng Chan's Singapore-listed unit GuocoLand may look at floating two real estate investment trusts (Reits) - one office and the other retail - holding assets in Singapore, China, Malaysia and possibly Vietnam, BT understands. The assets could be worth about $6 billion to $8 billion in total and the Reits, now under study, may be floated over the medium term.

A study of the group's portfolio shows it has a pipeline supply of investment properties - at various stages of development - totalling about four million square feet gross floor area (GFA) for offices (more than the office space at Marina Bay Financial Centre) and about 4.6 million sq ft retail space (about 31/2 times the shop space at Ngee Ann City) as well as some 5,000 car-park lots.

Most of this portfolio is not completed. Even after the properties are ready, it will take some time for yields to stabilise so that the assets are suitable for injection into Reits.

This portfolio of potentially Reit-able assets stems from GuocoLand's strategy of embarking on integrated developments with retail, office and sometimes even hotel components in addition to residential properties. In the past, the group would develop only residential projects for sale, but this changed a few years ago.

For integrated projects such as Guoson Centre Dongzhimen in Beijing, Guoson Centre Changfeng in Shanghai and a big project to be developed on a site next to Tanjong Pagar MRT Station in Singapore, the hotel components are likely to be sold off along with the residential units.

On the other hand, the retail and office space in these projects will be held as investment property for recurring rental income until their yields have stabilised and these assets are ripe for injection into the two proposed Reits.

Market watchers say the considerable stock of car parks in these assets could also be potentially divested or spun off as a Reit.

GuocoLand recently hired Leslie Yee, formerly head of research and funds management of The Link Management Limited, the manager of The Link Reit in Hong Kong. Mr Yee's appointment at GuocoLand - as general manager of special projects - has sparked speculation in the industry that the group is laying the groundwork for potential Reit flotations holding its regional office and retail portfolios respectively.

However, such flotations would be about three to five years away, judging by the completion timelines of the projects, say analysts.

In Singapore, the group owns about 57 per cent of the strata area in Tung Centre at Collyer Quay. Its mega development in Tanjong Pagar - including about one million sq ft GFA of offices and 75,000 sq ft of retail space - could be completed around 2015.

For the project in Changfeng, Shanghai, the group has sold one office tower, leaving it with two more towers with nearly 600,000 sq ft GFA of offices, as well as about 1.5 million sq ft of shop space in the project slated for completion by end-2012 that could be potential Reit material.

The Dongzhimen project in Beijing also includes about 1.5 million sq ft of offices and 1.7 million sq ft of retail space - all expected to be completed by mid-2011.

In Vietnam, GuocoLand is developing The Canary in Binh Duong province in Ho Chi Minh City. This will include over 880,000 sq ft of retail space, and is planned for completion around 2012-2015.

In Kuala Lumpur, GuocoLand is planning the Damansara City project, which will include about 900,000 sq ft GFA of offices and about 400,000 sq ft of shop space. It could take about three to five years to complete this project.

GuocoLand's 65 per cent owned Malaysian unit, GuocoLand (Malaysia) Berhad, has a 21.7 per cent stake in Bursa-listed Tower Reit, which holds three office buildings in Kuala Lumpur. Analysts suggest that if GuocoLand gets round to floating a regional office Reit, Tower Reit's assets could be merged with the new entity to make for a more interesting investment proposition.

On the stock market, GuocoLand's share price has appreciated about 42.7 cents or 20.1 per cent since end-2009. It ended at $2.55 yesterday, or one cent higher than the previous close.

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