REITs / Business Trusts

REITs / Business Trusts: With investors desperate for yield, shares of trusts have surged so far this year in Asia. But that enthusiasm has been largely focused on real-estate investment trusts (REITs) and hasn't been reflected in demand for business trusts. In Singapore, 90% of the assets in a REIT must be fully developed and already drawing income. Business trusts, meanwhile, can house assets such as ports, ships or water-mgt facilities, as well as real estate. But these assets may still be under development, and the returns tend to be less predictable. Int’l law firm Paul Hastings notes, in the current risk-adverse environment, people are flocking to buy into high-yielding bonds. With that kind of mentality, REITs' stable structure is more appealing, compared to the business trusts. Adds, business trusts are more difficult to understand and is a more complicated asset class in terms of assessment for investors. S- REITs have to distribute 90% of their income to shareholders. There is no such requirement in business trusts. S- REITs have current yields of between 6% and 7%, compared with an interest rate of 0.25% on SGD deposits over a 12-month period. Yields on business trusts tend to be even higher, reflecting greater risk. Still, in recent months planned business-trust offerings have been delayed. Aberdeen notes less-familiar asset classes are a harder sell for investors. i) Reliance Communications postponed a plan to list its undersea-cable assets in a Singapore IPO of up to US$1 b in July. The Indian company had been offering a yield of around 11.5%, twice the average yield of other Singapore-listed business trusts and REITS. ii) GE Capital Aviation Services pushed back its planned $750 m IPO in Singapore due to general wariness about aircraft being a depreciating asset, on top of lack of interest in IPOs in general. iii) Also in Nov, Japanese shopping-mall operator Croesus Retail Trust delayed the $650 m IPO of a business trust of shopping malls because of uncertain markets. The yield being offered was between 7% and 8%. In general, business trusts that have been listed haven't done well after their IPOs. i) Religare Health Trust, a collection of hospitals owned by Indian hospital chain Fortis Healthcare, is down 9.4% from its Oct IPO price. ii) PCRT, whose portfolio includes some offices and shopping malls still under construction, is down 31% from its IPO price since listing last year. iii) HPH Trust, which holds port assets in HK and China, is down 25% from last year's IPO price. Instead, many REITs have done well. Far East Organization and Ascendas group listed their hotel and serviced-apt assets in 2H12 through REITs. Far East Hospitality Trust and Ascendas Hospitality Trust are up 6.5% and 2.3%, respectively, from their IPO prices.