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SINGAPORE, December 10, 2002 - Real estate investment trusts (REITs) are still at an infancy stage in Asia and for it to be successful, there must be a paradigm shift among property owners' and investors' mindset towards a yield-driven market rather than relying heavily on capital growth returns, according to Jones Lang LaSalle in a special research paper released today. The paper titled "The Emergence of Real Estate Investment Trusts (REITs) in Asia" is part of a series of quarterly special papers published by Jones Lang LaSalle in Asia Pacific. The REITs research paper reported that it was only about a decade after REITs were created by Congress in the United States in the 1960s that the Asia Pacific region launched its first REIT (also known as a listed property trust or LPT) - the General Property Trust (GPT) in 1971 in Australia. It took another 30 years before the first "true" Asian REIT, probably triggered by the Asian economic crisis in 1997/1998, was finally launched in Japan in 2001. While the first REITs and LPTs in the US and Australia have been around for some time, their growth was most impressive after the 1987 "Black October" market crash. The capitalisation of US-listed REITs rose by nearly 13 times to US$155 billion between 1991 and 2001. In Australia, the capitalisation of LPTs rose from A$5 billion to about A$45 billion between 1992 and late-2002, a rise of nine times. Starting with the first LPT in 1971, there are now about 30 LPTs in Australia, accounting for some 8% of the total worth of listed stocks. The LPT sector has been one of the strongest performing sectors of the Australian Stock Exchange (ASX) since 1994. It continued to outperform the broader All Ordinaries for the year ending 31 December 2001 with LPTs achieving a total return of 15.2% compared to the All Ordinaries return of 10.2%. Japan Currently, there are six Japan REITs or J-REITs trading on the TSE, with more in the making. Almost all participants in J-REITs so far are Japanese conglomerates from the banking, insurance, corporate and real estate sectors, with the exception of UBS Asset Management, which has been the most active in promoting REITs in East Asia. The issue in Japan is that while J-REITs have been aggressively competing to buy quality properties, there are not many on the market; prime real estate in Tokyo is owned by property and insurance companies, which rarely put these on sale. J-REIT share prices have so far been patchy. The two J-REITs listed in 2001 are currently traded at a slight discount to their offer price, while Nihon Retail Funds, listed in March 2002 has appreciated by 1.1%. Korea Since the REITs Act, three K-REITs have been listed on the Korea Stock Exchange - the Kyobo-Meritz CR-REIT, the KOCREF 1 and KOCREF 2 CR-REITs, with more at the approval stage. As the Korean property market is currently healthy with long leases, low occupancies and strong yields, K-REITs are expected to be strong performers. Singapore Both the CMT and A-REIT achieved a better-than-expected subscription rate of about five times for their initial public offer (IPO). CMT's IPO was priced at S$0.96 per unit with a projected yield of 7.06% for 2002 and 7.25% the following year. For the July 16 - September 30 period, CMT achieved a distributable income of $11.03 million, 5% higher than the forecast at the time of its IPO. Based on the issue price of S$0.96, the annualised distribution yield is 7.41%, higher than the projected 7.06%. CMT shares are currently trading at more than 7% above the IPO price. The A-REIT IPO was priced at S$0.88 per unit with yields forecast to be at least 8%. The closing price at the end of its first trading day was S$0.925 with 32.56 million shares transacted. Currently, it is still trading at slightly above the IPO price. Although REITs constitute a very new investment product in the Singapore market, the success of the first two "S-REITs" suggest that local retail investors have quickly learned to appreciate its benefits. The Future of
REITs in Asia Pacific "However, it is also certain that as both developers and investors get familiar with the REIT instrument, more Asian countries will be introducing REITs in time to come," he adds. The successful launch of the first property-backed securities in China in July suggests that there is a very real possibility of setting up REITs in this huge market. Over in Hong Kong, preparation of a consultation paper on the introduction of REITs by the Securities and Futures Commission is underway. The formal consultation process is expected to commence in early 2003. The Securities and Exchange Board of India (SEBI) is also considering recommendations to allow mutual funds to directly invest in real estate via REITs, while Malaysia's Prime Minister recently advocated the establishment of REITs in the country in the 2002 Budget. "It will take some time for REITs to become a norm in the Asian property investment landscape as they already are in the United States and Australia. After all, it took more than three decades for the REIT market in the United States to really take off and at least two decades for Australia," Dr Yu concludes. About Jones Lang
LaSalle
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