Straits Trading Co., an investor in Singapore’s biggest publicly traded property trust manager, is planning “Blackstone-like” funds as Asia’s appetite for real estate investments increases.
Straits Trading last month invested in ARA Asset Management Ltd., the property trust manager partly owned by billionaire Li Ka-shing, and set up a joint venture with ARA’s Chief Executive Officer, John Lim, to invest in the property funds. The funds, with an eight-to-10-year time frame, will seek to follow the model of Blackstone Group LP, the world’s biggest manager of alternative assets including real estate, according to Chew Gek Khim, executive chairman of Straits Trading.
“Why can’t we have the equivalent of a Blackstone in Asia? You have the money, you buy the real estate, you REIT it, you exit,” she said in a Singapore interview yesterday. “We have not seen this done in Asia before. There’s a market for it.”
Plans for the funds come as cross-border property transactions in the Asia-Pacific region climbed 5.5 percent in the third quarter to $5.2 billion, according to CBRE Research. Commercial real estate transactions in the region rose 11 percent to $21.6 billion from the June quarter, the property brokerage said.
REITS have raised $2.7 billion through initial public offerings in Singapore, about a third of all REIT IPOs in Asia-Pacific this year, according to data compiled by Bloomberg. Mapletree Greater China Commercial Trust, which raised $1.4 billion in its February IPO, was the second-biggest fundraiser in Asia-Pacific this year after Nomura REIT in Japan.
Blackstone Chief Executive Officer Stephen Schwarzman is stepping up real estate investment in Asia, tapping the market for $4 billion for Blackstone’s maiden property fund focused on the region. Blackstone, which has been among the biggest buyers of property in Australia and India, is seeking more investment in China as rising income and urbanization drive demand.
Under the agreement with ARA, Singapore-based Straits Trading will buy a 20.1 percent stake in the trust manager for S$294.4 million ($235 million) in cash and shares from Li’s Cheung Kong Investment Co. and Lim. The transaction will make Straits Trading the biggest shareholder of ARA.
The Blackstone-style funds will be created through the new company formed with Lim, and the venture will have capital commitment of as much as S$950 million, according to the announcement last month. Straits Trading, a landlord in Singapore’s financial district, has real estate assets worth S$830 million, Chew said.
“The key will be on execution,” Singapore-based Terence Khi at UOB Kay Hian Pte said. “ARA’s focus is shifting away from launching new REITs towards private funds due to the impact of tapering and increased competition.”
The creation of new REITs comes as the number of retirees increase in the region, boosting demand for investments that offer a stable dividend. The number of people who will exceed 60 years old will reach 463.1 million by 2017, up from 391.3 million last year, according data compiled by Ageing Asia Pte.
“Logically, there should be a demand for REITs in Asia,” she said. “We have an aging population and REITs are a very steady form of income.”
The joint venture is still deciding on where the new properties will be located. Other than Singapore, the funds may seek investments in properties in Europe, Malaysia and Australia, Chew said.
Under the agreement with ARA, Straits Trading’s investment property portfolio will be managed as a separate account, according to the statement.
Straits Trading shares have fallen 2.7 percent this year, compared with the 8 percent slump in the measure tracking property stocks in Singapore.
The company had cash proceeds of S$508.8 million after accepting United Engineers Ltd.’s higher offer for its 44.58 percent stake in WBL Corp., giving Straits Trading more access to capital for its property funds.
“What we’re trying to do is create a whole ecosystem and a platform for monetizing real estate,” she said. “The environment is in our favor.”