14 December 2012
SINGAPORE - With investors desperate for yield in a prolonged low-rate environment, shares of trusts have surged in Singapore and elsewhere in Asia. But that enthusiasm has been largely focused on real estate investment trusts (REITs) and has not been reflected in demand for business trusts.
In Singapore, 90 per cent of the assets in a REIT must be fully developed and already drawing income. Business trusts, meanwhile, can house assets such as ports, ships or water management facilities, as well as real estate. But these assets may still be under development and the returns tend to be less predictable.
"In the current risk-averse environment, people are flocking to buy into high-yielding bonds. With that kind of mentality, the stable structure of a REIT is more appealing, compared to the business trusts," said Ms Vivian Lam, partner in the corporate department of international law firm Paul Hastings.
"Business trusts are more difficult to understand and are a more complicated asset class in terms of assessment for investors."
Singapore-listed REITs have current yields of between 6 and 7 per cent, compared with an interest rate of about 0.25 per cent on Singapore dollar deposits over a 12-month period. That kind of stable yield has kept investors interested in REITs. Yields on business trusts tend to be even higher, reflecting greater risk.
Still, in recent months, planned business trust offerings in Singapore by a shopping mall operator, an aviation company and a telco have been delayed.
Last month, Japanese shopping-mall operator Croesus Retail Trust delayed the US$650 million (S$793.5 million) initial public offering (IPO) of a business trust of shopping malls because of uncertain markets, people familiar with the transaction said. The yield being offered was between 7 and 8 per cent, they said.
In the same month, GE Capital Aviation Services, the jet leasing arm of General Electric of the US, pushed back its planned US$750 million IPO in Singapore. This was due to general wariness about aircraft being a depreciating asset, on top of lack of interest in IPOs in general, people involved in this transaction said.
Both GE and Croesus declined to comment.
In July, India's Reliance Communications postponed a plan to list its undersea cable assets in a Singapore IPO of up to US$1 billion. The company had been offering a yield of around 11.5 per cent, twice the average yield of other Singapore-listed business trusts and REITs.
Mr Christopher Wong, Senior Investment Manager at Aberdeen Asset Management in Singapore, said the less familiar asset classes were a harder sell for investors. "Although there's a chase for yield, investors are getting more discriminating about the underlying assets," he said.
In Hong Kong, a planned US$800 million business trust listing of serviced apartments by billionaire Li Ka Shing called Horizon Hospitality Holdings was pushed back last month. The company said it postponed its plan to raise money with a Hong Kong IPO and was considering "other options" for the assets.
In general, business trusts that have been listed in Singapore have not done well after their IPOs.
Religare Health Trust, a collection of hospitals owned by Indian hospital chain Fortis Healthcare, is down 3.9 per cent from its October IPO price. Perennial China Retail Trust, whose portfolio includes some offices and shopping malls still under construction, is down 22.9 per cent from its IPO price since listing last year. Hutchison Port Holdings Trust, which holds the port assets of Mr Li, is down 24.3 per cent from last year's IPO price.
In contrast, many REITs have done well. Singapore's Far East Organization and Ascendas group listed their hotel and serviced-apartment assets in the second half of this year through REITs. Far East Hospitality Trust and Ascendas Hospitality Trust are up 8.1 per cent and 4 per cent, respectively, from their IPO prices.