Business leaders disagree with MTI study on REITs

[Sammyboy RSS Feed]

An honorable member of the Coffee Shop Has Just Posted the Following:

Business leaders disagree with MTI study on REITs

June 12th, 2014 | Author: Editorial




Last month, the media reported that business leaders are of
the opinion that real estate investment trusts (REITs) play a major role in shop
rent hikes.

The rent hikes at some REIT-owned malls may also outpace revenue gains from
having a shop there, the business leaders told the media. They added that apart
from rising rents, another huge worry for retailers was a power imbalance in
favour of landlords.

In an attempt to debunk NCMP Yee Jenn Jong’s assertion in Parliament that
spiraling rental costs in Singapore is due to REITs, the Ministry of Trade and
Industry (MTI) last month published a “study” to counter him (‘MTI debunks NCMP Yee: REITs have no impact on rents‘).

During the Parliamentary debate in March this year, NCMP Yee said:


I echo the concerns of members who have called for attention on industrial
and commercial rents. We have already lost the ability to manage rental costs,
having ceded buildings that the government once controlled to REITs, which now
dominate the market.

In commercial retail, REITs, with their huge collective hold on the market
can force up prices, sometimes steeply with each renewal. I call on the
government to look at intervention measures, including having more industrial
space of its own to set desired rental benchmarks and to provide checks on the
rental practices of REITs in the malls as described by various members
earlier.
Some of the major REITs in Singapore are linked to the government. For
example, Mapletree Investments, a company under Temasek Holdings, owns and
manages multi-billions of dollars of office, logistics, industrial, residential
and retail properties. 3 of the major Singapore-listed REITS are managed by
it:

• Mapletree Logistics Trust, listed in 2005
• Mapletree Industrial Trust, listed in 2010
• Mapletree Commercial Trust, listed in 2011

Many of the state-owned properties were also transferred to these
government-linked REITs even after their IPOs. For example, in 2011, JTC
divested some of its properties to Mapletree Industrial Trust [Link].
11 blocks of flatted factories and amenity centres were divested to Mapletree
Industrial Trust for $400,300,000.

In response to Mr Yee’s concern in Parliament, MTI conducted a study to
“debunk” Mr Yee. MTI said that the study covered rental data from 35 REIT-owned
malls and 76 single-owner malls between 2000 and 2013,

After removing factors such as location and asset enhancement initiatives at
malls, “we find that the rents in REIT-owned malls are not statistically
different from rents in single-owner malls”, MTI said.

“Furthermore, among the malls that are acquired by REITs, we find no evidence
to indicate that the rents in these malls increased as a result of the
acquisition,” it added.

Hence, MTI concluded that REITs have no impact on retail rents. MTI said that
rentals are being driven up by the malls’ location and enhancements instead of
their ownership.

Retailers are not totally convinced of MTI’s study, however.

“Businesses have given us feedback to say that the study conclusions seem
hasty and unconvincing,” said Mr Victor Tay, COO of the Singapore Business
Federation.

Adding that several local shops have closed due to unaffordable rents, Mr Tay
said the situation could make it tougher for local retailers to survive and
grow.

Mr Kurt Wee, President of the Association of Small and Medium Enterprises,
told the media that the MTI study sparked an “outcry” in the food and beverage
and retail scene.

Mr Wee said that MTI’s study was not comprehensive enough. He added that many
smaller firms have in fact, reported double-digit rent increases this year.




Click here to view the whole thread at www.sammyboy.com.