Tuesday, September 20, 2005

The REIT play

Initial public offers of REITs are snapped up like the proverbial hot cakes when they are offered. It's near to impossible to get one's hands on them these days. But are there other ways of benefiting from the REITs rush?

(1) Vendors
By divesting the property to the REIT, the vendor receives cash which it may invest in other more profitable projects or to pay down its debt. A good example of a property developer disposing some of its assets and on-investing them in Chinese projects is Capitaland. Other SGX listed companies have also sold properties to REIT. Freight Links have sold several warehouses. Armstrong, Osim and TT International also come to mind. But will the proceeds be used wisely?

(2) Would be vendors
Market talk is that other companies with property portfolios on their books may be interested to also hive off their assets into REITs. With an ex-CEO of a REIT on board, the moves of F&N cannot be more overt. Or what about Cheung Kong who may potentially spin off more assets on its books into REITs?

(3) "Spill over" effect
When Prime REIT goes to the market, it will provide a benchmark to revalue other assets along Orchard Road. Bonvests which holds Yishun Ten and Liat Towers, of which the latter is a stone's throw from Wisma Atria, saw trading activity pick up. It's still trading about 50% under NTA. Paragon is held by SPH but the valuation of SPH may have fully factored in the possible sale of the properties. Or look across the road from Wisma to see CK Tang?

What's illustrated in this short post today is that there are other means of benefiting from this "REIT rush". Of course, never forget to do one's due diligence.



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