Minister Lim Hng Kiang's reply to Parliament Question on assessment of the REIT segment

Question No 88 in Notice Paper No 108 of 2011

Name and Constituency of Member of Parliament

Mr Zaqy Mohamad, Member for Chua Chu Kang GRC

Question

To ask the Minister for Trade and Industry (a) if he will provide an assessment on the REIT segment and its influence on rising rentals for industrial real estate; (b) whether the Ministry has performed any studies on the difference in rental and real estate valuations between industrial real estates run by REITs and non-REITs; (c) for the past 10 years, what is the proportion of industrial space under the Ministry that has been divested to REITs for industrial rental and whether the published rental prices have followed economic conditions well; and (d) what is the Government's assurance that industrial rents and real estate remain affordable to local businesses.

Answer

There are 7 industrial REITs in Singapore, which together own about 17% or 6.6 million sqm of the total industrial space in Singapore. The industrial REITs play a useful role in Singapore’s industrial property market. For example, they develop customised facilities on behalf of some industrialists, and then lease the facilities to them. This allows the industrialists to operate in customised facilities without having to pay development costs upfront. Industrial REITs may also buy completed facilities from industrialists, and then lease the facilities back to them. These two models help industrialists lighten their balance sheet, and channel the freed-up resources into their business operations or expansion plans.

Before JTC embarked on its divestment exercise, it had 4.4 million sqm or 12.8% market share of industrial space, in terms of lettable area. In 2008, JTC divested 1.2 million sqm. Initially, there were strong foreign interests. But with the onset of the financial crisis, foreign bidders stayed away and the successful bidder was Mapletree Investments Pte Ltd. In 2011, JTC divested another 0.3 million sqm in two tranches. One tranche was won by Soilbuild Group Holdings Ltd and the other tranche by Mapletree Industrial Trust.

As part of the divestment, JTC required buyers of the industrial properties to ensure business continuity for existing tenants. As a result, rental escalation caps were put in place by the buyers for the existing tenants. For properties divested to Mapletree in 2008, rental rates for existing tenants were capped at 5% growth per annum over JTC’s July 2007 posted rentals for three years. For properties divested to Mapletree in 2011, rental rates for existing tenants were capped at 5% growth per annum over JTC’s July 2011 posted rentals for three years. There were also discounts for tenants who had more than 10 years of continuous tenancy.

Based on publicly available information, the average gross rental of Mapletree Industrial Trust’s properties has also been broadly in line with Singapore’s economic conditions, as can be seen in this chart that has been circulated:

Source of Mapletree Industrial Trust’s gross rental:

http://www.mapletreeindustrialtrust.com

I assure Members that MTI and JTC will continue to keep a close watch on the industrial property market. Where necessary, we will release more land through our Industrial Government Land Sales programme, and implement other measures as needed, to ensure that the industrial property market remains stable and sustainable.