The development of asian reit markets

2014

The Development of
REIT Markets in Asia
The steady growth in the Asian property market and the success of REITs in the US
have been the major drivers for the development of REITs in Asia over the last ten
years. There are now over 130 REITs across Japan, Singapore, Hong Kong,
Malaysia, Taiwan, Thailand and South Korea. Many other Asian countries are in
the process of implementing REIT structures. Given the increased significance of
Asian REITs, this paper provides an overall description of the evolution of REITs
globally, the development of REITs in Asia, as well as the significance of Asian
REITs within a global context.

PHAM, AK

(Alex) Anh Khoi Pham
University of Western Sydney
The Development of REIT Markets in Asia
1/1/2014

1

Contents

Introduction ..................................................................................................................... 3
The Development of REIT Markets in Asia ..................................................................... 3
Japan ........................................................................................................................... 6
Background .............................................................................................................. 6
Regulatory Structure .............................................................................................. 10
Singapore .................................................................................................................. 12
Background ............................................................................................................ 12
Hong Kong ................................................................................................................. 16
Background ............................................................................................................ 16
Malaysia .................................................................................................................... 20
Background ............................................................................................................ 20
Thailand ..................................................................................................................... 24
Background ............................................................................................................ 24
Taiwan ....................................................................................................................... 28
Background ............................................................................................................ 28
South Korea ............................................................................................................... 31
Background ............................................................................................................ 31
Prospective Asian REIT Markets ............................................................................... 33
India ....................................................................................................................... 33
Pakistan ................................................................................................................. 33
The Philippines....................................................................................................... 34
China...................................................................................................................... 35
The significance of Asian REITs ................................................................................... 35
Summary ....................................................................................................................... 39
References .................................................................................................................... 43
Contact Author .............................................................................................................. 43

PHAM, AK


2

Introduction
In the 1960s, the US Congress commenced the creation of Real Estate Investment Trusts
(REITs) which would provide affordable access to investment in commercial property to all
investors. Prior to the establishment of the US REIT regime, the commercial property market
was dominated by high net-worth individuals or institutional investors. US REITs allow retail
investors to purchase partial ownership of large-scale income-producing properties. In addition,
US REITs would also offer investors tax advantages as they are pass-through vehicles,
meaning that income tax is exempted at the corporate level.

Over the last fifty years, investment in US REITs has increased, with US REITs becoming the
most important indirect investment vehicle in property. As of December 2011, US REITs made
up 88.5% of the total listed property market in the US (Macquarie 2011) . The last decade has
seen a rapid expansion of REIT structures worldwide. By 2011, there were 22 countries and
territories around the world that have established REIT regimes. Despite the major impact of the
Global Financial Crisis (GFC), the global REIT market has grown dramatically in the last
decade. The global REIT market has grown to a total market capitalisation of US$700 billion,
with much of the recent growth being in Asia. The region has been the nucleus of the global
economic growth in the last decade, recovering strongly from the GFC and remaining solid amid
the debt crisis in the US and Europe. This strong economic growth combined with rapid
urbanisation have been a major stimulus to the property markets in Asia (Newell 2012).

The steady growth in the Asian property market has been the major driver for the development
of REITs in Asia over the last ten years. In November 2000, Japan was the first country in Asia
to establish a REIT market. Since then, there have been six other REIT markets established in
the region. These are Singapore, South Korea, Thailand, Taiwan, Malaysia and Hong Kong.
Other Asian nations such as China, India, Pakistan and the Philippines are also in the
processing of implementing their own REIT regimes. Figure 0.1 illustrates the revolution of REIT
markets in Asia.

In just over a decade, the number of Asian REITs has grown to 133 REITs across the seven
Asian REIT markets with a combined market capitalisation of over US$100 billion as of June
2012. Asian REITs has become a major component of the global property portfolio, accounting

PHAM, AK


3

for 12.5% of the global REIT market in 2011 (Macquarie 2011). Japan, Singapore and Hong
Kong are among the top 10 REIT markets globally by total market capitalization. Asian REITs
have also delivered strong performance over the last five years, significantly outperforming the
major REIT markets of the US, UK and Australia (S&P 2012). The development of Asian REITs
is further supported by favourable changes in the regulatory structures in recent years. This has
been received positively by both local and international investors.

Figure 0.1: Evolution of Asian REIT Markets

2003:
Thailand

2005:
Taiwan
Malaysia
Hong Kong

Future:
India
Pakistan
Philippines
China

2002:
Singapore
South Korea
2001:
Japan

Source: Author
Table 0.1 shows the top REITs by market capitalisation in each of the seven Asian REIT market
as of June 2012. The largest REITs in Asia were Link REIT (ranked #1 and had US$8.6 billion
in market value), Nippon Building Fund (#2 and US$5.3 billion), Japan REIT (#3 and US$4.7
billion), Capita Mall (#4 and US$4.6 billion) and Accendas (#5 and US$3.5 billion). Three Asian
REITs were in the top 50 REITs globally (Newell, 2012). Asian REITs invest across a wide
range of property sectors including office, retail, industrial, lodging and residential sectors.
Diversified REITs were also available in most markets. There were also REITs engaging in
specialised assets such as healthcare and plantation. In addition, Asia was a pioneer in the
establishment of specialised REIT products such as Islamic REITs and RMB-denominated
REITs. This diverse profile for Asian REITs offer investors many investment opportunities and
significant property exposure.

PHAM, AK


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Table 0.1: Leading REITs in Asia by Country: June 2012
Property
REIT Name
Sector
Japan
NIPPON BUILDING FD.
Office
JAPAN REIT
Office
JAPAN RETAIL FD. INV.
Retail
Singapore
CAPITAMALL TRUST
Retail
ASCENDAS REAL ESTATE INVESTMENT
Industrial
CAPITACOMMERCIAL TRUST
Retail
Hong Kong
LINK REIT
Retail
HUI XIAN REIT
Diversified
CHAMPION REIT
Office
Malaysia
PAVILION REIT
Retail
SUNWAY REIT
Diversified
CAPITAMALLS MALAYSIA TRUST
Retail
Thailand
CPN RETAIL GROWTH LEASEHOLD
Retail
TESCO LOTUS RETAIL GROWTH
Retail
SAMUI AIRPORT PROPERTY FUND
Industrial
Taiwan
CATHAY NO.1 REIT.
Diversified
SHIN KONG NO.1 REIT.
Diversified
CATHAY NO.2 REIT.TRUST
Office
South Korea
KOCREF 15 CR-REIT
Office
KOCREF REIT 8
Office
TRUS Y 7 REIT
Diversified
Source: Author’s compilation from DataStream

PHAM, AK

No. of
Mkt Cap. Asia
Properties (US$ mln) Rank
67
57
70

5,346
4,676
2,859

#2
#3
#7

16
95
9

4,634
3,476
2,593

#4
#5
#8

180
2
2

8,631
2,880
2,000

#1
#6
#11

2
8
4

1,135
1,087
839

#26
#27
#40

3
17
1

729
666
333

#44
#49
#75

3
6
3

828
487
347

#41
#56
#72

1
2
NA

52
41
34

#107
#110
#113


5

Japan
Background
In November 2000, Japan was the first country in Asia to establish a REIT market. The
Japanese real estate investment trusts (J-REITs) were introduced by the Act on Investment
Trusts and Investment Corporations also known as the Investment Trust Law (ITL). According to
the ITL, there are two different types of J-REITs; (1) investment trusts and (2) investment
corporations. So far, all listed J-REITs have been established as investment corporations
(CBRE 2011).

In September 2001, Japan Real Estate Investment (sponsored by Mitsui Fudosan) and Nippon
Building Fund (sponsored by Mitsubishi Estate) were the first two J-REITs listed on the Tokyo
Stock Exchange (TSE). The Japanese REIT market capitalisation has expanded rapidly to
reach US$50 billion in May 2007. During the GFC, market value fell rapidly by more than half to
its trough at US$21 billion in October 2008. In the period after the GFC, the J-REIT market has
recovered strongly, supported by stimulus programmes (e.g. Real Estate Market Stabilisation
Fund, Asset Purchase Program) by the Japanese government and the Bank of Japan (BOJ)
(ARES 2012).

On March 11 2011, a magnitude 9.0 earthquake struck the east coast of Japan triggering a
devastating tsunami and causing a number of subsequent nuclear accidents. In the immediate
aftermath of the earthquake, fear of a nuclear crisis has shocked the Japanese share market.
The Nikkei 225 share index plunged by 10.22% within a week after the earthquake. The
Japanese REIT market was also affected but to a lesser extent than shares, dropping by only
4.38% for the week. This is partly because the direct impact of the crisis on J-REITs was only
limited, as they had only 3% of their assets in the affected areas (JLL 2011). The estimated
repair cost of damages on J-REITs’ properties totalled ¥2,980 million (US$38 million), averaging
0.11% of their total asset size (ARES 2011). By the end of April 2011, the J-REIT index has
actually increased by 1.72% over the previous month.

With a strong boost by the BOJ’s asset purchasing scheme, J-REITs have been actively
expanding their property portfolios. Acquisitions by J-REIT jumped by 67% yoy to US$9 billion in
2011, accounting for around two-thirds of the total regional volume during the period (CBRE
2012). Despite a temporary setback from the natural disaster, the post-GFC period from

PHAM, AK


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October 2008 to April 2012 witnessed a remarkable recovery of the J-REIT market, as total
market capitalisation almost doubled from US$21 billion to US$41 billion (Figure 0.2).

With 34 listed J-REITs and a total market capitalisation of US$41 billion (Table 0.2), as of
September 2011, Japan has become one of the major global REIT markets. It is home to the
fourth largest REIT market in the world after the US (#1), Australia (#2) and France (#3). In
Asia, Japanese REITs have been playing a leading role, making up 41.1% of the total Asian
REIT market capitalisation as at June 2012. The country has 4 REITs in the top 10 largest
REITs in Asia, 9 in the top 20 and 24 in the top 50. Within a domestic context, J-REITs
accounted for 32.4% of the local listed property securities market. The industry is strongly
supported by the government and the private sector, in particular by professional associations
such as the Association for Real Estate Securitisation (ARES).

Figure 0.2: Evolution of J-REIT Industry: October 2001 – April 2012
GFC

60
50
40
30
20
10
0

No of J-REITs

Market Cap (US$ billion)


PHAM, AK


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Table 0.2: J-REITs by Property Sector: June 2012
Sector
Market Cap. (US$ mln)
Diversified
15,946
Office
14,599
Residential
4,926
Retail
4,434
Industrial
2,104
Lodging
277
Total
42,287

No. of REITs
16
7
7
2
2
1
35

Figure 0.3 depicts the J-REIT property segmentation. J-REITs invested across the diversified
(36%), office (35%), residential (12%), retail (11%), industrial (5%) and lodging (1%) property
sectors (Figure 0.3). The majority of J-REITs hold assets in diversified property sectors (16),
followed by the office (7) and residential (7) sector. Table 0.3 presents the profile of J-REITs as
of June 2012. In total, J-REITs own 1,981 properties, averaging 58 properties per J-REIT.

Figure 0.3: J-REIT Segmentation
Industrial Lodging
5%
1%

Industrial
6%

Retail
11%

Retail
5%

Diversified
36%

Residential
12%

Diversified
46%

Residential
20%

Office
35%

Office
20%

By Market Capitalisation

PHAM, AK

Lodging
3%

By Number of REITs


8

Table 0.3: Profile of Listed J-REITs: June 2012
Listed
Property
No. of
Mkt Cap.
Asia
REIT Name
Date
Sector
NIPPON BUILDING FD.
Sep-01
Office
67
5,346
#2
JAPAN REIT
Sep-01
Office
57
4,676
#3
JAPAN RETAIL FD. INV.
Mar-02
Retail
70
2,859
#7
UNITED URBAN INV.
Dec-03
Diversified
90
2,150
#10
JAPAN PRIME REALTY INV.
Jun-02
Diversified
58
1,981
#12
ADVANCE RESIDENCE INV.
Mar-10
Residential
190
1,966
#13
MORI TRT. SOGO REIT
Feb-04
Diversified
13
1,941
#14
NOMURA RE OFFICE FD.
Dec-03
Office
51
1,643
#17
FRONTIER REIT
Aug-04
Retail
26
1,576
#18
JAPAN LOGISTICS FD.
May-05
Industrial
29
1,255
#22
NIPPON ACC. FD.
Aug-06
Residential
88
1,224
#23
ORIX JREIT
Jun-02
Diversified
66
1,188
#24
ACTIVIA PROPERTIES INC.
Jun-12
Diversified
18
1,172
#25
DAIWA HOUSE RES.
Mar-06
Diversified
124
1,061
#28
DAIWA OFFICE INV.
Oct-05
Office
36
945
#30
JAPAN EXCELLENT
Jun-06
Office
23
929
#33
MORI HILLS REIT INV.
Nov-06
Diversified
10
884
#35
KENEDIX REALTY INV.
Jul-05
Diversified
83
879
#36
IND. & INF. FD.
Oct-07
Industrial
22
849
#37
FUKUOKA REIT
Jun-05
Diversified
19
842
#39
TOP REIT
Mar-06
Diversified
18
828
#42
TOKYU REIT
Sep-03
Diversified
26
781
#43
NOMURA RE RES.
Feb-07
Residential
152
725
#45
PREMIER INV.
Sep-02
Diversified
54
671
#47
GLOBAL ONE REIT
Sep-03
Office
8
594
#51
JAPAN RTL. HOUSING INV.
Jun-06
Residential
177
591
#52
MID REIT
Aug-06
Office
12
466
#59
SEKISUI HOUSE SI INV.
Jul-05
Diversified
64
459
#61
ICHIGO REIT
Oct-05
Diversified
67
373
#68
HANKYU REIT
Oct-05
Diversified
15
370
#69
HEIWA RE REIT
Mar-05
Diversified
88
367
#70
JAPAN HOTEL AND RESORT
Feb-06
Lodging
28
277
#79
KENEDIX RES. INV.
Apr-12
Residential
20
168
#85
STARTS PROCEED INV.
Nov-05
Residential
76
143
#89
INVINCIBLE INV.
May-04
Residential
54
108
#96
TOTAL
1,999
42,287
Sources: Author’s compilation from DataStream, ARES (2012) and various companies’ websites

PHAM, AK


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Regulatory Structure
Legal Form
According to the Act on Investment Trusts and Investment Corporations (ITL), a J-REIT must be
formed as a trust type or a corporation type. They are further sub-divided to open-ended or
closed-ended funds depending on the possibility of cancellation or redemption of shares. Up to
2011, all of the current J-REITs were corporate type since the legal process for the trust type
was more burdensome and expensive (EPRA 2011). The corporate governance rules for the
corporate type were also considered to be more favourable for investors.

Minimum Initial Capital
J-REITs are subject to the minimum investment capital of ¥100 million (US$1.26 million).

Sponsorship
The REIT market in Japan has a unique sponsorship system. Under this system, a J-REIT is
required to have a sponsor or a parent company. The sponsor will establish a REIT manager
and acquire a “Building Lots and Building Transactions Agent Licence” and a “Discretionary
Transaction Agent Licence” from the Ministry of Land, Infrastructure, Transport and Tourism
(MLIT). After these licences are obtained, the manager may apply for registration as an
investment manager with the Financial Services Agency (FSA). Typically, J-REITs are
sponsored by major property companies in Japan. For example, the first two J-REITs Japan
Real Estate Investment and Nippon Building Fund, are sponsored by two major property players
in Japan; the Mitsui Fudosan and the Mitsubishi Estate respectively. The REIT sponsor has an
important role because it wholly owns the REIT management company and often have a large
holding in the REIT (CFA Institute 2011).

Management Structure
Figure 0.4 outlines the typical corporation structure for a listed J-REIT. J-REITs have an
external management structure, whereby the trust or investment corporation has no employees
and must use a registered asset management company. The investment manager is required to
have a minimum paid-in-capital or net assets of ¥50 million (US$0.63 million) and sufficient
experienced personnel.

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Figure 0.4: Investment Corporation Structure for Listed J-REITs

Unit Holders

Distributions

Outsourcing of
Management
Services
Asset Manager
Management Fee

J-REIT
Investment
Corporations
Board of
Directors

Outsourcing of
Custodian
Function
Custodian
Asset Custody
Fee

Distributable
Income

Flow of funds
Services
Ownership

Properties

Source: CFA Institute (2011)

PHAM, AK


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Singapore
Background
The Singaporean REIT (S-REIT) sector started in 1999, after the first set of regulatory
guidelines for REITs was issued by the Monetary Authority of Singapore (MAS). S-REITs are
subject to the Securities and Future Act (SFA) and the Code on Collective Investment Schemes
(CCIS). S-REITs may or may not be listed on the Singapore Exchange (SGX).

In July 2002, CapitaMall Trust made a successful debut public offering and became the first SREIT to be listed on the SGX. The following five years saw a wave of new S-REITs, as both
developers and investors took advantage of the low interest rate environment. During the period
from 2002 to 2007, there were 19 additional S-REITs launched. The industry however suffered
in 2008 as the capital market was impacted by the GFC. The market endured a dry spell over
the next two years with only one successful listing, the IndiaBulls Properties Trust on June
2008. Since 2011, the market however has become more active, thanks to ample liquidity in the
financial system following the implementation of measures to stimulate economic growth. The
period over 2010-2011 saw the establishments of 5 new S-REITs, among which were the two
heavyweights backed by Temasek; the Mapletree Industrial Trust (raising approx. US$1 billion)
and the Mapletree Commercial Trust (raising US$ 1.6 billion).

As of June 2012, there were 26 publicly traded S-REITs with an overall market capitalisation of
approximate US$31 billion (Table 0.4). Singapore is the second largest REIT market in Asia
after Japan, accounting for 30.9% of the total size of the regional REIT market. As of June 2012,
9 of the 26 S-REITs were retail REITs, representing almost half (US$14.97 billion) of the S-REIT
market capitalisation (Figure 0.5). The industrial sector accounts for 8 S-REITs (US$9.08
billion), corresponding to 29% of the total market capitalisation.

Table 0.5 depicts the property profile and market capitalisation of public S-REITs as of June
2012. S-REITs had a significant profile in terms of portfolio size and market capitalisation. The
number of properties ranged from 2 (Indiabulls Properties) to 133 (Saizen REIT), averaging 28
properties per S-REIT. The largest S-REIT, in terms of market capitalisation, was CapitaMall
Trust (US$4.6 billion), while the smallest one was Saizen REIT (US$144 million). S-REITs also
have a significant position regionally, accounting for 4 of the top 10 Asian REITs, 8 of the top 20
and 16 of the top 50 in terms of market value. It has been considered the best REIT market in

PHAM, AK


12

Asia consistently for overall potential, property market growth, REIT opportunity and regulatory
support (Trust 2011).

Table 0.4: S-REITs by Property Sector: June 2012
Sector
Retail
14,972
Industrial
9,083
Office
2,393
Lodging
1,348
Specialty
1,273
Residential
1,066
Diversified
738
Total
30,873

No. of REITs
9
8
2
1
2
2
2
26

Figure 0.5: S-REIT Segmentation
Residential Diversified
2%
Specialty 4%
Lodging 4%

Residential
8%

4%

Office
8%
Retail
49%

Diversified
8%
Retail
34%

Lodging
Specialty
4%
8%

Office
7%

Industrial
29%

Industrial
31%


PHAM, AK

By Number of REITs


13

Table 0.5: Profile of Listed S-REITs: June 2012
Listed
Property
No. of
Mkt Cap.
REIT Name
Date
Sector
Properties (US$ mln)
CAPITAMALL TRT.
Jul-02
Retail
16
4,634
ASCENDAS REIT
Nov-02
Industrial
95
3,476
CAPITACOMMERCIAL TRT.
May-04
Retail
9
2,593
SUNTEC REIT
Dec-04
Retail
7
2,218
K-REIT ASIA
Apr-06
Office
8
1,930
MAPLETREE LOGISTIC TRT.
Jul-05
Industrial
96
1,811
MAPLETREE IND. TRT.
Oct-10
Industrial
70
1,444
CDL HOSPITALITY TRT.S
Jul-06
Lodging
12
1,348
MAPLETREE COMERCIAL TRT.
Apr-11
Retail
2
1,327
FRASERS CENTREPOINT TRT.
Jul-06
Retail
4
1,043
FORTUNE REIT
Aug-03
Retail
14
944
STARHILL GLOBAL REIT
Sep-05
Retail
6
936
ASCOTT RESIDENCE TRT.
Mar-06
Residential
48
922
PARKWAY LIFE REIT
Aug-07
Specialty
36
849
CAPITARETAIL CHINA TRT.
Dec-06
Retail
9
667
LIPPO MALLS INDO. RETAIL
Nov-07
Retail
15
610
CACHE LOGISTICS TRT.
Apr-10
Industrial
10
558
CAMBRIDGE IND. TRT.
Jul-06
Industrial
47
490
SABANA SHARIAH IND. TRT.
Nov-10
Industrial
20
467
FRASERS COMMERCIAL TRT.
Mar-06
Office
9
463
ASCENDAS INDIA TRT.
Aug-07
Industrial
5
450
FIRST REIT TRT.
Dec-06
Specialty
10
424
PERENNIAL CHINA RETAIL TRT. Jun-11
Diversified
8
394
AIMS AMP CAPITAL IND.
Apr-07
Industrial
26
388
INDIABULLS PROPERTIES
Jun-08
Diversified
2
344
SAIZEN REIT
Nov-07 Residential
133
144
TOTAL
717
30,873
Source: Author’s compilation from DataStream and various companies’ websites

Asia
Rank
#4
#5
#8
#9
#15
#16
#19
#20
#21
#29
#31
#32
#34
#38
#48
#50
#53
#55
#58
#60
#62
#63
#64
#66
#73
#88

Legal Form
An S-REIT must be formed as a trust.

There is no minimum capital required for S-REITs.

PHAM, AK


14

Management
Figure 0.6 illustrates a typical structure for a listed S-REIT. An S-REIT may be managed
externally or internally, but in practice all are externally managed. Under the SFA, the
management company is required to be a public company incorporated in Singapore. In
addition, the manager should have a physical office in Singapore and have minimal capital
funds of S$1 million (US$0.78 million).

Figure 0.6: Typical Structure for a Listed S-REIT

Unit Holders

Adviser
Identifies
Investment
Opportunities

Fee

Distributions

Management
Services
Manager

Holds Property on Trusts
for Unit Holders
S-REIT

Trustee

Management Fee

Trustee Fee
Distributable
Income

Flow of funds
Services
Ownership

Properties


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15

Hong Kong
Background
In July 2003, The Hong Kong Securities and Future Commission (SFC) issued the Code on
Real Estate Investment Trusts (Code on REITs), setting up the foundation for the establishment
of Hong Kong Real Estate Investment Trusts (HK-REITs). The code was ratified in 2005 and
2007 for the formal regulatory operation of HK-REITs. In 2010, further amendments were made
to encourage the growth and attractiveness of HK-REITs to investors. The changes included
lifting the maximum borrowing ratios from 35% to 45% and allowing overseas investments and
new property sectors.

In November 2005, the Link REIT became the first Hong Kong REIT (HK-REIT) to be
established through the world’s largest initial offering at that time. At June 2012, there were 7
HK-REITs listed on the Hong Kong Stock Exchange (HKEx) with a total market capitalisation of
US$15 billion (Table 0.6). This saw Hong Kong being the third largest REIT market in Asia, after
Japan and Singapore. HK-REITs engaged across the retail (2 REITs), diversified (2), office (2)
and lodging (1) industry. The retail REITs dominated the market, accounting for almost 60% of
the total market capitalisation.

The profiles of HK-REITs at June 2012 are provided in Table 0.7. HK-REITs are often
established and supported by major property players in the country. Link REIT, the largest REIT
in Hong Kong and Asia, was established by the Hong Kong Housing Authority. At June 2012, it
had a market capitalisation of US$8.6 billion and the portfolio consisted of 180 properties with
an internal floor area (IFA) of approximately 11 million square feet (1 million sqm) of retail
space. Several other HK-REITs are also founded by leading property companies, such as
Prosperity REIT (Cheung Kong), Champion REIT (Great Eagle) and Sunlight REIT (Henderson
Land).

With many positive regulatory changes in recent years, Hong Kong is considered the second
most attractive REIT market in Asia, after Singapore, in terms of overall potential, property
market growth and regulatory support (Trust 2011). Hong Kong is also an important gateway for
investors to gain access to the mainland China’s property market. Many HK-REITs hold
substantial assets in mainland China. Hui Xian REIT (backed by Cheung Kong) was the first
RMB-denominated REIT in the world and established in April 2011. As of June 2012, it was the
second largest REIT in Hong Kong and ranked 6th in Asia. All of its investment properties are

PHAM, AK


16

located in mainland China; i.e. the Beijing Oriental Plaza and the Sheraton Shenyang Lido
Hotel. Other China-focus HK-REITs include the Regal REIT and the GZI/Yuexiu REIT.

Table 0.6: HK-REITs by Property Sector: June 2012
Sector
Retail
9,106
Diversified
3,386
Office
2,295
Lodging
714
Total
15,501

No. of REITs
2
2
2
1
7

Figure 0.7: HK-REIT Segmentation
Lodging
4%
Lodging
14%

Office
15%

Diversified
22%

Retail
59%

Retail
28%

Office
29%

Diversified
29%

Table 0.7: Profile of Listed HK-REITs: June 2012
Listed
Property
REIT Name
Date
Sector
LINK REIT
Nov-05
Retail
HUI XIAN REIT
Apr-11
Diversified
CHAMPION REIT
May-06
Office
REGAL REIT
Mar-07
Lodging
SUNLIGHT REIT
Dec-06
Diversified
YUEXIU REIT
Dec-05
Retail
PROSPERITY REIT
Dec-05
Office
TOTAL

PHAM, AK

By Number of REITs

No. of
Mkt Cap.
180
8,631
2
2,880
2
2,000
6
714
20
506
5
475
7
295
222
15,501


Asia
Rank
#1
#6
#11
#46
#54
#57
#78

17

Legal Form
A typical structure of a HK-REIT is shown in Figure 0.8. A HK-REIT is a collective investment
scheme established as a unit trust. It may hold property directly or indirectly through SPVs.
However, such SPVs must be legally and beneficially owned by the HK-REIT and it must have
the majority ownership of the SPVs. Generally, no more than two layers of SPVs are allowed
unless specifically approved by the SFC.

As all HK-REITs must be listed, they are governed by the Code on REITs as well as the Listing
Rules issued by the HKEx. Unit holders of a HK-REIT cannot require redemption of their units,
but they can only exit via a sale of their units on the HKEx.

There is no minimum initial capital for HK-REITs.

Management
The appointed management company can be internal or external. The management company
may choose to itself perform all the functions required of it under the Code on REITs or delegate
or contract out to one or more outside entities one or more of these functions. Furthermore, a
trustee that is functionally independent of the management company of the REIT must be
appointed, but may be part of the same corporate group if certain requirements are met.

PHAM, AK


18

Figure 0.8: Typical Structure of a Listed HK-REIT

Unit Holders

Holds Units

Trustee

Fees

Owner of the SPVs,
holding the Properties
on Trust for Unit
Holders

The H-REIT

Management
Company

Management
Services

Special Purpose Vehicles
(SPVs)

Fees
The Properties


PHAM, AK


19

Malaysia
Background
The history of the Malaysian REIT (M-REIT) industry dated back to the establishment of listed
property trusts (LPTs) in 1989. However, it was not until 2005 that the Securities Commission of
Malaysia (SC) issued the Guidelines on Real Estate Investment Trusts (ordinary M-REITs) and
Guidelines for Islamic Real Estate Investment Trusts (Islamic M-REITs), providing the principal
legislations governing the official establishment of REITs in Malaysia. Both types of M-REITs
share similar regulatory structures and requirements, except that the Islamic M-REITs have to
comply with the Sharia requirements. Malaysia was the first country to introduce guidelines for
Islamic REITs at that time (Newell & Osmadi 2009).

As of June 2012, there were 15 M-REITs listed on the Bursa Malaysia (MYX), with a total
market capitalisation of US$5 billion (Table 0.8). This saw Malaysia being the fourth largest
REIT market in Asia. However, the REIT industry in Malaysia was still relatively small as
compared to those in Japan, Singapore and Hong Kong. Three of the largest M-REITs; Pavilion
REIT (US$1.14 billion), Sunway REIT (US$1.09 billion) and CapitaMalls Malaysia Trust
(US$839 million), were among the top 50 REITs in Asia in terms of market value. The three
Islamic M-REITs were Axis (US$390 million), Al-Hadharah Boustead (US$351 million) and
Al’Aqar Healthcare REIT (US$274). The number of properties in M-REIT portfolios ranged from
2 to 29, averaging 10 properties per M-REIT.

PHAM, AK


20

Table 0.8: Profile of Listed M-REITs: June 2012
Listed
Property
REIT Name
Date
PAVILION REIT
Dec-12
SUNWAY REIT
Jul-10
CAPITAMALLS MALAYSIA TRT.
Jul-10
AXIS REIT
Aug-05
STARHILL REIT
Dec-05
AL-HADHARAH BOUSTEAD REIT Feb-07
AL’AQAR HEALTHCARE REIT
Aug-06
UOA REIT
Dec-05
AMANAHRAYA REIT
Feb-07
AMFIRST REIT
Dec-06
HEKTAR REIT
Dec-06
QUILL CAPITAL TRT.
Jan-07
TOWER REIT
Apr-06
ATRIUM REIT TRT.
Apr-07
AMANAH HARTA TANAH PNB
Sep-01
TOTAL

Sector
Retail
Diversified
Retail
Office
Retail
Specialty
Specialty
Office
Diversified
Office
Retail
Office
Office
Industrial
Diversified

No. of
Propertie
s
2
8
4
29
10
12
19
6
15
8
5
10
3
5
11
147

Mkt Cap.

Asia

(US$ mln)
1,135
1,087
839
390
383
351
274
181
161
156
141
139
123
44
33
5,436

Rank
#26
#27
#40
#65
#67
#71
#80
#83
#86
#87
#90
#91
#94
#109
#114

Based on the types of properties, M-REITs were categorised as retail (4 REITs), diversified (3),
office (5), specialty (2) and industrial (1) sector (Table 0.9). Retail M-REITs comprised the
largest segmentation, accounting for 46% of M-REIT market capitalisation (Figure 0.9). This
group was followed by the diversified and office REITs, representing 25% and 18% of the total
market value respectively.

Table 0.9: M-REITs by Property Sector: June 2012
Sector
Retail
2,497
Diversified
1,282
Office
988
Specialty
625
Industrial
44
Total
5,436

PHAM, AK


No. of REITs
4
3
5
2
1
15

21

Figure 0.9: M-REIT Segmentation
Industrial
1%

Industrial
7%

Specialty
11%
Specialty
13%

Office
18%

Retail
27%

Retail
46%

Office
33%

Diversified
24%


Diversified
20%

By Number of REITs

Legal Form
REITs in Malaysia have to be registered as unit trusts. Malaysian trustees must be approved by
the SC (Figure 0.10). M-REITs can be listed or unlisted. A listed M-REIT is subject to the listing
requirements of the MYX. Unlisted M-REITs are opened-ended, meaning there is a mandatory
requirement for the management company, upon the proper request of an investor, to
repurchase units issued to unit holders.

The minimum initial capital of an M-REIT is MYR100 million (US$32 million). For subsequent
offerings, the minimum size of the funds is MYR25 million (US$7.8 million).

Management
An M-REIT must be externally managed and administered by a management company
approved by the SC. Foreigners can hold up to 70% of the equity of the management company.
At least 30% of the equity of the management company must be held by bumiputra (ethnic
Malay) shareholders. The properties held by the trust must be managed by a qualified property
manager.

PHAM, AK


22

An Islamic M-REIT is subject to similar requirements as above, plus a Shariah committee or a
Sharia to ensure that any asset acquired is Shariah-compliant.

Figure 0.10: Typical Structure for an M-REIT

Unit Holders

Dividends
and other
distribution

Management
Fee
REIT Managers

Trustee Fee
REIT

Management
Service

Property
Management
Companies

PHAM, AK

Trustee
Acts on behalf
of Unit Holders

Property
Management
Service
Authorised
Investments
Property
Management
Fee


Flow of funds
Services
Ownership

23

Thailand
Background
The concept of real estate investment trusts in Thailand (Thai-REIT) was introduced in 2002, as
a recovery vehicle for distressed properties after the 1997 Asian financial crisis. The Thai
version of a REIT is known in the country as Listed Property Funds for Public Offering (PFPO).
This is a type of mutual fund and is listed on the Stock Exchange of Thailand. The law
regulating the PFPO is the Securities and Exchange Act B.E. 2535, enacted in 1992. Although
PFPO was initially established as a resemblance of the REIT structures in the US and Australia,
the PFPO code is considered to be more rigid than other REIT regulations overseas.

In October 2010, the Securities and Exchange Commission of Thailand (TSEC) announced that
it has approved the new REIT regulatory framework, under the Trust for Transactions in Capital
Market Act B.E. 2550 (2007). The new legislations aimed to follow international REIT practices
and provide greater flexibility for REITs as compared to the current PFPO code. There will be
less restriction on investment activities. More importantly, the maximum total borrowing of ThaiREITs will be raised to 50% of NAV, as opposed to 10% in the case of PFPO. This will give
Thai-REITs more flexibility to acquire additional properties and to optimise their capital structure.
These changes had been well received by property trust managers as well as institutional
investors. The current PFPO will be able to convert into the REIT. However, in March 2011, the
government announced that the enactment of the new Thai-REIT framework will be delayed
until the Revenue Department clarifies the corporate income tax status of institutional investors.

The first Thai-REIT, UOB Apartment Property I Leasehold, was listed on the SET in 2003. As of
June 2012, there were 37 listed Thai-REITs investing across retail (5), industrial (8), office (6),
lodging (6), residential (7) and diversified (5) property sectors (Table 0.10). Even though small in
number (5), the retail REITs accounted for the almost half (44%) of the total market
capitalisation of US$4.1 billion, followed by industrial (23%) and office (12) REITs (Figure 0.11).

The profile of listed Thai-REITs as of June 2012 can be seen in Table 0.11. Thai-REITs are
characterised by small size, with an average market capitalisation of US$111 million and lack of
property exposure. The average number of properties in a Thai-REIT portfolio is only 8, with the
majority of them (11) holding single property portfolios. The largest Thai-REIT in terms of the
number of properties is the Ticon Property Fund, with 174 assets in the industrial property
sector.

PHAM, AK


24

Table 0.10: Thai-REITs by Property Sector: June 2012
Sector
Retail
1,817
Industrial
937
Office
509
Lodging
395
Residential
275
Diversified
177
Total
4,111

No. of REITs
5
8
6
6
7
5
37

Figure 0.11: Thai-REIT Segmentation
Residential
7%

Diversified
4%

Diversified
14%

Retail
13%

Lodging
10%
Retail
44%
Office
12%

Lodging
16%

Industrial
23%


PHAM, AK

Residential
19%

Industrial
22%

Office
16%

By Number of REITs


25

Table 0.11: Profile of Listed Thai-REITs: June 2012
REIT Name
CPN RETAIL GROWTH LH
TESCO LOTUS RETAIL GROWTH
SAMUI AIRPORT PROP. FD.
TICON PROP. FD.
QUALITY HOUSES LH
FUTURE PARK LH
MAJOR CINEPLEX
DUSIT THANI FH & LH
PRIME OFFICE LH
WHA PREMIUM FACTORY
LAND AND HOUSE PROP. FD.
TALAAD THAI LH
CENTARA HOTEL & RESORT
THAI RETAIL INV. FD.
TPARK LOGISTICS PROP. FD.
MILLIONAIRE PROP. FD.
MFC AMAZING A-LA ANDAMAN
THAI COMMERCIAL INV.
QUALITY HOSPITALITY LH
GOLD PROP. FD.
LUXURY RE
MFC-NICHADA THANI
MULTI-NATIONAL RESIDENCE
NICHADA THANI PROP. FD. 2
BANGKOK COMMERCIAL PROP.
TU DOME RESIDENCE COMPLEX
MERCURE SAMUI PROP.
MFC-STRATEGIC STORAGE FD.
THAI IND. FD. 1
SALA @ SATHORN PROP. FD.
TRINITY PROP. FD.
SUB SRI THAI
101 MONTRI STORAGE PROP.
PROP. PERFECT FD.
URBANA PROP. FD.
UOB APARTMENT PROP.
JC LH PROP. FD.
TOTAL

Listed
Date
Aug-05
Mar-12
Nov-06
May-05
Dec-06
Dec-06
Jul-07
Jan-11
Apr-11
Dec-10
Apr-12
Nov-10
Oct-08
Jul-11
Dec-09
Mar-05
Nov-11
Jun-10
Apr-08
May-07
Jun-08
Aug-05
Jun-08
Apr-09
Nov-03
Dec-06
Aug-10
Aug-09
Jun-05
Aug-09
Mar-11
May-11
Aug-09
Mar-08
Oct-07
Oct-03
Jan-07

Property
Sector
Retail
Retail
Industrial
Industrial
Office
Retail
Retail
Lodging
Office
Industrial
Residential
Diversified
Lodging
Retail
Industrial
Office
Lodging
Office
Lodging
Residential
Lodging
Residential
Residential
Residential
Diversified
Diversified
Lodging
Industrial
Industrial
Office
Diversified
Industrial
Industrial
Residential
Diversified
Residential
Office

No. of
Mkt Cap. Asia
3
729
#44
17
666
#49
1
333
#75
174
328
#76
3
234
#81
1
212
#82
2
124
#92
3
123
#93
2
118
#95
3
108
#97
3
104
#98
NA
91
#99
1
87
#100
1
87
#101
15
86
#102
1
73
#103
2
67
#104
4
63
#105
1
55
#106
1
50
#108
1
39
#111
2
35
#112
3
33
#115
2
30
#116
2
29
#117
3
26
#118
1
24
#119
4
22
#120
8
21
#121
1
21
#122
1
21
#123
NA
21
#124
1
18
#125
2
14
#129
1
10
#130
1
8
#132
1
NA
NA
272
4,111

Source: Author’s compilation from DataStream and various companies’ websites

PHAM, AK


26

Legal Form
The current Thai-REITs are established as mutual funds. However, under the new regime, ThaiREITs will be closed-ended trusts with no maturity. The Thai-REITs must be listed on the SET
within 60 days of completion or the date they are offered to investors.

Management
The management company, appointed by the trustee, must be licensed by the Ministry of
Finance and regulated by the Office of Securities and Exchange Commission of Thailand. The
management company and the trustee cannot be related.

A capital of minimum ฿500 million (US$3.2 million) is required.

PHAM, AK


27

Taiwan
Background
In Taiwan, the Real Estate Securitisation Act (RESA) came into effect in 2003 and was last
amended in 2009. Fubon No. 1 was the first Taiwanese REIT (T-REIT), which was established
on March 2003 and listed on the Taiwanese Stock Exchange (TWSE) on July 2006. To date, a
total of eight T-REITs have been launched and floated on the TWSE. However, two T-REITs
have been delisted since 2011 (i.e. Trident REIT and Kee Tai REIT).

Table 0.12 shows the market break-up of the current T-REITs as of June 2012. There were six
currently listed T-REITs with a total market capitalisation of US$2.4 million, accounting for 2.5%
of the Asian REIT market. This saw Taiwan having the second smallest REIT market in Asia
(#6/7 market), above only South Korea. Among the 6 T-REITs, 4 of them invested in the
diversified property sector, representing 73% total market capitalisation, while the other 2
invested in offices, accounting for the remaining 27% of the T-REIT market capitalisation (Figure
0.12).

As seen from Table 0.13, all of the currently listed T-REITs were launched prior to May 2007; no
new T-REITs have been launched subsequently as of June 2012. T-REITs have relatively small
capitalisation, averaging US$415 million and small property portfolios ranging from 3 to 6
properties.

Table 0.12: T-REITs by Property Sector: June 2012
Sector
Diversified
1,830
Office
661
Total
2,491

PHAM, AK


No. of REITs
4
2
6

28

Figure 0.12: T-REIT Segmentation

Office
27%

Office
33%

Diversified
67%

Diversified
73%


By Number of REITs

Table 0.13: Profile of Listed T-REITs: June 2012
Listed
Property
No. of
Mkt Cap.
REIT Name
Date
Sector
CATHAY NO.1 REIT
Jul-06
Diversified
3
828
SHIN KONG NO.1 REIT
Jul-06
Diversified
6
487
CATHAY NO.2 REIT
Oct-06
Office
3
347
FUBON NO.1 REIT
Jul-06
Diversified
4
338
FUBON NO.2 REIT
Jul-06
Office
3
313
GALLOP NO.1 REIT
May-07 Diversified
3
177
TOTAL
22
2,491
Sources: Author’s compilation from DataStream and various companies’ websites

Asia
Rank
#41
#56
#72
#74
#77
#84

Legal Form
The RESA allows two structures for T-REITs; real estate investment trusts (REITs), following
US model, which require the establishment of a mutual fund; and real estate asset trust (REAT),
following the Japan’s regime of special purpose trusts. Both types of T-REITs are established as
trusts and administered by a trustee. A trustee is an institution that may manage and dispose
the trust property and raise public offerings or private placements the in the shares of T-REITs.
In practice, all trustees have been local banks or branch offices of foreign banks in Taiwan.

PHAM, AK


29

Management
Under the RESA, the manager is external and must be appointed by the trustee. A manager is
not required to be specially licensed or approved.

The minimum initial capital ranges from NT$300 million (US$10 million) to NT$2 billion (US$67
million) depending on the scope of business engaged by the trust. The minimum paid-in capital
required for a T-REIT engaging only in REIT or both the REIT and REAT business under the
RESA is NT$1 billion (US$67 million) and the minimum paid-in capital for a trust company
engaging only in REAT business is NT$300 million (US$67 million).

PHAM, AK


30

South Korea
Background
The ground work for REITs in South Korea (K-REITs) was laid in 2001 by the amendment of the
Real Estate Investment Company Act (REICA). The introduction of REITs was a part of the
government’s reforms to create an effective scheme for troubled property companies to spin off
their real assets. Despite high expectations, the K-REIT market attracted little attention from
both property companies and investors due to a burdensome legal process.

In 2007, the Korean Ministry of Construction and Transportation revised the REICA in an
attempt to further simplify regulations governing the establishment and operation of K-REITs.
Major elements of the revision included the reduction of restrictions on borrowing, initial capital
requirements and lengthy approval processes. Currently, there are 3 REIT regimes in South
Korea; (1) corporate restructuring (CR) REITs, self-managed (SM) REITs and managerentrusted (ME) REITs.

The first listed K-REIT was the Kyobo-Meritz 1 CR-REIT, launched in April 2002. However, it
has since been delisted from the Korea Stock Exchange (KRX). As of June 2012, there were 7
active K-REITs in the diversified (4), office (2) and residential (1) property sector (Table 0.14).
Despite having an early start, the K-REIT industry was still lagging behind its regional
counterparts. As of June 2012, it was the smallest REIT market in Asia, with a total market
capitalisation of just US$465 million, accounting for less than 0.5% of the total Asian REIT
market capitalisation. The diversified sector made up the largest segmentation, representing
74% of K-REIT total market capitalisation (Figure 0.13).

Table 0.14: K-REITs by Property Sector: June 2012
Sector
Office
93
Diversified
81
Residential
10
Total
184

PHAM, AK


No. of REITs
2
4
1
7

31

Figure 0.13: K-REIT Segmentation
Residential
5%

Residential
14%

Office
29%

Office
51%

Diversified
44%

Diversified
57%


By Number of REITs

Table 0.15: Profile of Listed K-REITs: June 2012
Listed
Property
No. of
Mkt Cap.
REIT Name
Date
Sector
KOCREF 15 CR-REIT
Jan-10
Office
1
52
KOCREF REIT 8
Jun-06
Office
2
41
TRUS Y 7 REIT
Sep-11
Diversified
NA
34
K-TOP REIT
Jan-12
Diversified
NA
18
GOLDEN NARAE RE DEV.
May-10
Diversified
NA
15
KWANG HEE DEV. REIT
Jul-11
Diversified
NA
14
E-COREA REIT
Mar-11
Residential
NA
10
TOTAL
3
184
Sources: Author’s compilation from DataStream and various companies’ websites

Asia
Rank
#107
#110
#113
#126
#127
#128
#131

Legal Form
A K-REIT must be established as a stock corporation (chusik hoesa) under the Korean
Commercial Code and REICA. CR K-REITs are joint stock companies that have finite lives of
five years and must be dissolved when the period ends, while the ordinary K-REITs, SM and
ME, are paper companies with infinite lives. K-REITs must be established in Korea.

PHAM, AK


32

The minimum initial capital of ₩500 million (US$0.4 million) is required for obtaining a business
license from the Ministry of Land, Transport and Maritime Affairs (MOLTM). Within 6 months
after the license is granted, the equity capital should be increased to ₩7 billion (US$6 million)
for the SM K-REITs and ₩5 billion (US$4.3 million) for the CR and SM K-REITs.

Management
The management can be either internal or external.

Prospective Asian REIT Markets
India
In December 2007, the Securities and Exchange Board of India (SEBI) issued the long awaited
draft regulations on Real Estate Investment Trusts for public comments. Based on the public
consultation, the SEBI determined that Indian REITs should be established in the form of mutual
funds, of which the legal framework has existed. In April 2008, the SEBI further amended the
existing SEBI Mutual Fund Regulation to incorporate Real Estate Mutual Funds (REMFs), the
Indian model of REITs. Currently, there is as yet any REMF to be established in India. However,
there is a number of Real Estate Private Equity Funds (REPEFs) providing access to India’s
property market.

Pakistan
A REIT framework has been introduced in Pakistan in 2008, following the enactment of the Real
Estate Investment Trust Regulation by the Securities and Exchange Commission of Pakistan
(SECP). REITs in Pakistan are established as closed-ended trusts. The requirements for
Pakistan REITs are very similar to those in other Asian REIT markets. For example, Pakistan
REITs are also required to distribute not less than 90% of their annual income to unit holders.
As long as the 90% minimum distribution obligations are met, Pakistan REITs will be subject to
income tax exemption. In addition, the REIT regulations also require that each REIT must have
a minimum size of PKR2 billion (US$21 million) and the management company must hold at
least 20% in each REIT.

In March 2009, the SECP granted permission to two REIT management companies. Among
four applications received,f only two were approved, whereas the other two were rejected due to

PHAM, AK


33

their failure to meet the requirements. The two approved managers were Arif Habib REIT
Management Company Ltd. and AKD REIT Management Company Ltd. Both companies have
filed a number of REIT schemes with the SECP for its approval.

The Philippines
The Real Estate Investment Trust Act of 2009, also known as the Republic Act 9856, was
enacted in December 2009, providing the legal base for Philippine REITs (P-REITs). The REIT
Act became effective in February, 2010. In April 2010, the Securities and Exchange
Commission of the Philippines (PSEC) released a draft of the Implementing Rules and
Regulations in relation to the REIT Act 2009.

The legal structure of P-REITs follows that of J-REITs, where they will be formed as
corporations with shares of stocks instead of unit trusts. P-REITs are required to have a
minimum paid-up capital of ₱3 million (US$72,000) and at least 1,000 public shareholders. The
Act further advises that at least 75% of a P-REIT’s assets must be in income-generating
property. With respect to leveraging, borrowings shall not exceed 75% of the market value of
each P-REIT. Furthermore, 90% of distributable income must be allocated to shareholders.

In addition to the general requirements, which are in line with international standards, the
Philippine’s regulators has imposed a number of highly stringent rules in terms of ownership and
taxation. In particular, the public ownership of P-REITs is required to be at least 40% during the
first two years from listing and 67% by the third year. The Bureau of Internal Revenue (BIR)
further insists that P-REITs could only receive pass-through status if they maintain public
ownership of at least 67% and distribute at least 90% of their distributable income. Additionally
to the minimum ownership, the BIR also requires a 12% value-added tax on the initial transfer of
property assets in P-REITs.

These strict rules have been publicly criticised by property market participants. A number of
major property developers in the country, including SM Prime, Ayala Land and Megaworld, have
postponed their plans for P-REIT initial offerings. Consequently, the Philippines was placed
second last, above only Thailand, in Asia in terms of overall potential, REIT opportunity and
regulatory support, despite having high property market growth potential (Trust 2011).

PHAM, AK


34

China
As at June 2012, China does not have any legal framework for REITs. The first attempt to
establish a REIT model in China (C-REIT) was in 2004 when the China Banking Regulatory
Commission (CBRC) issued a consultation draft governing companies that engage in REITs
(Clifford Chance 2010). In 2007, two local companies Union Trust & Investment and CITIC
Securities, were given permission by the People’s Bank of China (PBC) to establish pilot
schemes. However, these pilot programmes were later abandoned due to the 2007 GFC and
fear of the Chinese property bubble.

In December 2008, the Chinese government reconsidered the introduction of C-REITs to the
financial market. The PBC and other central government authorities, including the CBRC and
the China Securities Regulatory Commission (CSRC), have been drafting rules and
administrative guidelines for pilot C-REITs. Local governments in Beijing, Tianjin, Shanghai and
Shenzhen have expressed their interest to participate in the pilot programmes formulated by the
PBC. In 2009, it was reported that a number of listed companies in Shanghai, including
Shanghai Zhangjiang Hi-Tech Park Development, Shanghai Jinqiao Export Processing Zone
Development, Shanghai Waigaoqiao Free Trade Zone Development and Shanghai Lujiazui
Finance & Trade Zone Development, have submitted their applications to the State Council for
approval. However, no pilot C-REIT scheme has been endorsed up to date.

The significance of Asian REITs
Since the establishment of the first REIT in 2001, the Asian REIT market has grown significantly
to reach its peak at U$81 billion in May 2007 (Figure 0.1). As the GFC unfolded, the total market
value plunged by half to its lowest point at US$38 billion in October 2008. However, the
subsequent period after the GFC has witnessed a robust recovery of the market, supported by
strong fiscal stimulus and quantitative easing measures from governments across Asia. Taking
advantage of the low interest rates and abundant capital, Asian REITs have intensified new
public offerings and acquisition activities during 2009 – 2011. Total market capitalisation has
almost trebled from its trough to an all-time high at US$106 billion in April 2012, well above the
pre-GFC’s level.

PHAM, AK


35

Figure 0.1: Evolution of Asian REIT Markets: October 2001 – June 2012
120

GFC

100

60

US$ billion

80

40
20
0

Japan

Singapore

Hong Kong

Malaysia

Taiwan

Thailand

South Korea

Source: Author’s complitation from DataStream
The strong recovery of Asian REITs after the GFC is further shown in Table 0.1. It can be seen
that Asian REIT markets were stronger performers than the mature REIT markets of the US, UK
and Australia. As of the first quarter of 2012, the Asian REIT markets, except Japan, have
recovered from the previous 5-year’s levels, while the mature markets were still in negative
territory.

Table 0.1: Asian REIT Performance: Q1 2012
YTD
Japan
12.2%
Singapore
15.8%
Hong Kong
4.1%
Malaysia
3.4%
Taiwan
12.3%
US
10.7%
UK
14.3%
Australia
8.4%
Source: S&P (2012)

1 Year
-0.2%
1.3%
14.5%
20.2%
45.0%
12.9%
-5.4%
2.3%

3 Year
18.7%
37.6%
31.1%
13.0%
30.9%
43.4%
24.1%
31.4%

5 Year
-5.5%
0.9%
12.0%
4.1%
13.8%
-0.3%
-18.1%
-9.4%

As of June 2012, there were 133 REITs across Asia with a combined market value of US$100
billion. Table 0.2 and Figure 0.2 depict the significance of Asian REITs within a regional and
global context. Currently, the Asian REIT market is dominated by the three developed markets

PHAM, AK


36

of Japan, Singapore and Hong Kong, making up more than 90% of the total market
capitalisation. Japan is still the largest REIT market in Asia, representing 41% of the regional
market value. However, there has been strong competition coming from Singapore (31%) and
Hong Kong (15.5%), as they position themselves as regional hubs for offshore REIT listings.
The last few years have also seen the emerging markets of Malaysia, Thailand, Taiwan and
South Korea implementing significant regulatory changes in order to catch up with the leading
players.

Within a global context, Asia REITs also have a significant profile, adding up to 12% of the
global REIT market as of June 2011. Japan (#5), Singapore (#7) and Hong Kong (#8) were
among the top 10 REIT markets globally in terms of market size.

Table 0.2: Significance of Asian REITs: June 2012
No. of Mkt Cap. % of Asia Asia REIT
% of Global
Global REIT
Country
REITs (US$ bln)
REITs
Rank
REIT*
Rank*
Japan
35
42.3
41.9%
#1
5.8%
#5
Singapore
26
30.9
30.6%
#2
3.8%
#7
Hong Kong
7
15.5
15.4%
#3
1.9%
#8
Malaysia
15
5.4
5.4%
#4
0.5%
#12
Thailand
37
4.1
4.1%
#5
0.1%
#15
Taiwan
6
2.5
2.5%
#6
0.3%
#20
South Korea
7
0.2
0.2%
#7
<0.1%
#22
Asia Total
133
100.9
100.0%
12.5%
*As of September 2011. Sources: Author’s compilation from DataStream, Macquarie (2011)

PHAM, AK


37

Figure 0.2: Asian REIT Market Share
Thailand
4.1%
Malaysia
5.4%

Taiwan
2.5%

Hong Kong
15.4%

South Korea
0.2%

Japan
41.9%

Singapore
30.6%

Table 0.3 and Figure 0.3 present the break-down of Asian REIT assets by property types. In
terms of market value, retail property was the largest REIT sector in Asia, followed by the
diversified and office sector. As of June 2012, there were 22 retail REITs with a combined
market value of US$32.8 billion, representing 33% of the total Asian REIT market. Among the
133 listed REITs, 36 REITs held diversified property portfolios with a total equity value of
US$22.5 billion (23%), while 26 REITs invested in office buildings worth US$21.6 billion (22%).
Asian REITs also invest across industrial (US$12.2 billion; 12%), residential (US$6.3 billion;
6.3%), lodging (US$2.7 billion; 2.7%) and specialty (US$1.9 billion; 1.9%) properties.

Table 0.3: Asian REIT Market by Property Sector
Sector
No. of REITs
Mkt Cap. (US$ mln)
Retail
22
32.8
Diversified
36
22.5
Office
26
21.5
Industrial
19
12.2
Residential
17
6.3
Lodging
9
2.7
Specialty
4
1.9
Total
133
100.0
Source: Sources: Author’s compilation from DataStream

PHAM, AK


% of Total
32.8%
22.6%
21.5%
12.2%
6.3%
2.7%
1.9%
100.0%

38

Figure 0.3: Asian REIT Market Break-down by Property Type
Lodging
Residential 2.7%
6.2%

Specialty
1.9%

Retail
32.5%

Industrial
12.1%

Office
21.4%
Diversified
23.2%

Summary
This paper has provided an overall description of the evolution of REITs globally, the
development of REITs in Asia, as well as the significance of Asian REITs within a global
context. Since its inception in the 1960s in the US, the REIT marketplace has grown
dramatically. REITs now play an important role in the commercial property market as well as the
broader economy. The success of REITs in the US has led to their adoption around the world.
As of 2011, there were more than 500 listed REITs across 22 markets, with a combined market
capitalisation of US$815 billion (Macquarie 2011).

In Asia, REITs have been introduced during the early 2000s. At the moment, REIT regulations
have been developed across Japan, Singapore, Hong Kong, Malaysia, Taiwan, Thailand and
South Korea. Table 0.1 provides a legislation summary of the current REIT regimes in Asia.
Other major Asian economies including India, Pakistan, the Philippines and China are also in
progress towards setting up their own REIT markets. The rapid development of the REIT sector
in Asia is underpinned by strong economic growth, increased competitiveness, transparency
and reduced corruption levels. Recent years have also seen the industry enjoying many positive
regulatory changes and government support.

PHAM, AK


39

At the moment, there are 133 Asian REITs with a total market capitalisation of US$100 billion,
representing 12% of the global REIT market. The post-GFC period has seen robust recovery of
the Asian REIT industry, outperforming those in the US and UK. Asian REIT markets provide
institutional investors effective channels to tap into the huge potential of the commercial
property markets in the region. In addition, special products such as Islamic REITs and RMBdenominated REITs also create new investment opportunities and diversification tools for global
investors. As the prospective REIT markets, in particular those of India and China, are expected
to be launched in the next couple of years, the medium and long-term outlook for Asian REITs
remains very optimistic.

PHAM, AK


40

Table 0.1: Asian REIT Legislation Overview
JAPAN
SINGAPORE HONG KONG
Structure
Trust or corporate Collective
Unit trust
(listed REITs are all investment
corporations)
scheme (Unit
trust) or
corporate

Management
structure

External

External

SOUTH KOREA
CorporateRestructuring,
Entrusted
Management,
DevelopmentSpecialised, SelfManaged
Internal/ External Internal/ External

% invested in For listed J-REIT, at At least 70% Only invest in real
real estate
least 75% of assets of deposited estate
must be invested in property
real estate
should be
invested in
real estate or
real estaterelated assets

At least 70% in
real estates or
corporate
restructuring
related properties

Geographical No restriction under No
restrictions
the Investment
Trust and
Investment
Company Act, but
no overseas
acquisitions have
been made as the
requirements on
real estate appraisal
of overseas

No

PHAM, AK

No


TAIWAN
Trust (Real estate
asset trust or
investment trust)

THAILAND MALAYSIA
Closed-end Unit trust
mutual fund

Internal/ External

External

External

Cash, government
Must invest At least 50% of a
bonds, property,
at least 75% fund’s total asset
property-related rights, of NAV in
value must be
beneficiary securities property
invested in real
or ABS issued under
estate and/or
Real Estate
single- purpose
Securitization Act/
companies at all
Financial Asset
times
Securitization Act
(RESA/ FASA) must
form at least 75% of
the NAV
No restriction under the Thailand only No restriction
RESA; subject to
basically, subject
approval
to approval from
SC and relevant
authorities

41

Table 0.1: Asian REIT Legislation Overview
properties are
ambiguous.
Property
Restricted – at least Property
Prohibited, but Hdevelopments 50% of total assets developmentsREIT may acquire
are income
and
uncompleted units
producing and
investments comprising less
unlikely be sold
in
than10% NAV
within one year
uncompleted
projects
should not
exceed 10%
Leverage
No restriction
Over 35% of Capped at 45% of
total assets gross asset value
permitted with
disclosed
credit rating
(capped at
60%)

Allow for urban
May acquire Prohibited, but
renewal, infrastructure properties
may enter into
or public amenities
over 80%
conditional
construction;
completed, forward purchase
investments should not but
agreement
exceed 15% of asset prohibited to
value
invest in
dormant land
(for PFPO)
REITs are
Varies based on credit Not more
50% of total asset
permitted to have rating; 50% of total
than 10% of value (revised
exceptional
asset value for REITs NAV
from 35%)
borrowing up to with credit rating of
1000% of equity twAA or above
capital, upon
special approval
of shareholders
Dividend
At least 90% of
At least 90% At least 90% of
At least 90%
At least 90% of
At least 90% Not specified in
payout
distributable income so as to enjoy annual net income
distributable income
of net profits the M-REIT
to qualify for tax
exemption
after tax
guideline
deduction
from paying
corporate tax
Source: CBRE (2010)

PHAM, AK

Allow


42

References
A full reference list will be provided upon requested.

Contact Author
(Alex) Anh Khoi PHAM

Email: ak_pham@live.com
Alex is an investment specialist with solid academic and industry experience. He is specialised in
property econometrics, asset allocation, portfolio management and investment analysis.

Disclaimer: This paper is an amended extract from the author’s PhD thesis titled “An empirical
analysis of Real Estate Investment Trusts in Asia: Structure, Performance and Strategic Investment
Implications”. No part from this paper may be copied, reproduced, re-published, uploaded, posted,
transmitted, or distributed in any way without permission from the author.

PHAM, AK


43

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