Singapore may finally be getting its first Syariah-compliant real estate investment trust (REIT) when Mapletree Investments lists Mapletree Industrial Trust (MIT) later this year.

“We’re looking at the possibility of creating a REIT through an IPO this year,” says Hiew Yoon Khong, CEO of Mapletree Investments, at a media briefing on June 30. The most “REIT-ready” of Mapletree Investments’ assets are 39 blocks of flatted factories as well as a slew of other industrial buildings, including warehouses and business parks. It has already packaged these assets into MIT and brought in Bahrain-based Arcapita Bank to take up a 56.1% stake. Mapletree Investments owns a further 25% of MIT, while the the rest is held by Mapletree Industrial Fund, a fund sponsored by Mapletree Investments and Itochu.

MIT’s assets are valued at some $1.73 billion, according to Mapletree Investments’ annual report for the year to March. Mapletree Investments is wholly owned by Temasek Holdings.

Mapletree Investments plans to position MIT as a Syariah-compliant REIT even though it costs more than operating an ordinary REIT. Hiew says doing so will enable the REIT to tap Middle Eastern funds for cash. “There is Middle East demand for stable yield,” he says. The IPO size is likely to be between S$500 million (RM1.2 billion) and S$1 billion, Hiew adds.

Chief financial officer Wong Mun Hong says, “If we are able to do a sizeable offering, it would address the liquidity issue from day one and be included in the index, and would be an attractive investment.” He also confirms the appointment of a banker to bring MIT to market.

MIT’s average occupancy rate is close to 90%, a level marginally below the industry average of 91%. Its property yield is about 7% across the whole portfolio, says Phua Kok Kin, CEO of the trust’s manager. “Organic growth is very strong. The key plus of the portfolios is that it is under-rented. We were under a rental cap of 5% per annum. The rental cap falls away in June 2011 and we will be able to price according to the market,” he adds.

Chua Chor Hoon, head of research for Southeast Asia at DTZ, warns, however, that industrial rents are likely to continue to increase at a slow pace because of the large amount of new industrial property being developed. “[There is] approximately 15 million sq ft of private industrial space in the pipeline over the next 1½ years,” she says. Chua adds that hi-tech park rents are expected to be largely unchanged throughout the year, owing to a substantial amount of business park developments expected to be completed in 2H2010 as well as competition from office buildings in secondary locations.

Also, the current debt levels at MIT are untenable for a listed REIT. CFO Wong says MIT’s debt-to-asset gearing is now more than 50%, but its balance sheet will be restructured ahead of any listing. He figures that its debt-to-asset gearing is likely to be reduced to between 30% and 35%, with a large part of the debt unsecured. While regulations allow for REITs to be geared up to 60%, no REIT manager would intentionally gear to those levels. REITs that aspire to a credit rating need to have their gearing ratios below 35%.

Some observers believe MIT will be accorded a premium by the market simply because it is sponsored by a Temasek-linked company. REITs linked to the likes of Ascendas and CapitaLand were able to lean on their parents for a pipeline of assets during the boom and financial support during the bust. Mapletree Industrial Fund has properties in Singapore, Vietnam and Japan, and MIT is likely to have right of first refusal to the Singapore properties. “For the industrial portfolio, given our business model, a REIT was the natural way,” Hiew says. Still, the timing of the listing would depend on market conditions.

With the listing of MIT, Mapletree Investments will have three locally listed REITs, including Mapletree Logistics Trust and Lippo-Mapletree Indonesia Retail Trust. The property group is already thinking about putting its commercial assets into a fourth REIT, Mapletree Commercial Trust (MCT), which will be anchored by VivoCity and will include HarbourFront, the newly completed Mapletree Business Centre, PSA Building and Merrill Lynch HarbourFront. Mapletree Investments recently took back the management of VivoCity from CapitaLand.

Hiew says, once MIT and MCT have successfully listed, Mapletree Investments may eventually list itself. The Temasek company was formed in 2002 to house the properties once owned by PSA Corp, which is why most of them are in the west, with a focus on industrial and logistics.

Alexis Adamczyk, head of equity capital markets in Asia for HSBC, says one area Singapore has done well in is the listing of REITs. “It’s worked a lot better here than for Hong Kong,” says Adamczyk, who estimates that this year’s IPOs for Southeast Asia are likely to be US$2.7 billion (RM8.6 billion). So far, Sunway REIT in Malaysia is the largest at US$460 million. Cache Logistics Trust raised S$417 million and CapitaMalls Malaysia Trust is looking to raise US$260 million. If Government of Singapore Investment Corp lists its Prologis assets in a REIT, it could raise as much as S$1 billion, some market watchers say.

Goola Warden is associate editor at The Edge Singapore

This article appeared in Corporate page of The Edge Malaysia, Issue 814, July 12-18, 2010