Mr REIT ready to get investment vehicle on road
STEPHEN FINCH IS known to his colleagues as 'Mr REIT'. It is little wonder. As managing director of debt capital markets at DBS Bank, Mr Finch has had a hand in all the three real estate investment trusts (REITs) listed in Singapore, including last week's launch of Fortune REIT from Cheung Kong (Holdings).
Several other Hong Kong companies had also expressed interest in setting up a REIT, he said. The interest follows the announcement of rules from the Securities and Futures Commission (SFC) that make the investment vehicles possible.
But Mr Finch has not always been synonymous with REITs. He studied geography at Texas A&M University and later earned a Master of Business Administration from Harvard University.
In the industry for 17 years, he started at Citibank in New York and later was sent to Japan, Indonesia, the Philippines, Thailand and Singapore. After 13 years at Citibank, he joined ANZ Investment Bank briefly before landing at DBS in January 2000.
The Informer spoke with Mr Finch about the developing REIT market in Hong Kong and Singapore.
Q: Cheung Kong launched its REIT offering in Singapore two days before the SFC announced regulations for them. Why didn't it wait to list in Hong Kong?
A: It's up to Cheung Kong to answer this question. But the property group started discussions on issuing a REIT with us in October last year. That was long before the first SFC consultation.
Q: Do you think Cheung Kong will seek a secondary listing for its REIT in Hong Kong?
A: The Cheung Kong REIT prospectus says it may consider a secondary listing.
But again, it would be up to the company to decide. Because the Hong Kong rules are similar to other markets, it would be possible for any REIT to apply for dual listings.
Q: Besides Cheung Kong, are there any other Hong Kong companies in discussions with DBS on a possible REIT offering?
A: Yes, we have several Hong Kong companies which have shown interest in issuing a REIT.
The products would be a good method for property companies to raise funds, while the investors would enjoy a stable yield from the rental income. It also helps investors to invest in specific properties.
For example, they could invest into a REIT holding retailers or any class of asset they like. The products have been successful in the US, Japan, Australia and Singapore and it now comes to Hong Kong. DBS has a commitment to develop the Hong Kong REITs market.
Q: Do you think Hong Kong has lost out to other markets, as it issued REIT regulations only last week?
A: [Overall], local property companies like to launch REITs in the domestic market and investors also like investing in local REITs. It's natural, because the investors can visit the properties and check out the tenants. Hong Kong is a huge property market and it is a city big enough to develop REITs.
Q: There are critics who note the Hong Kong regulations allow domestic REITs to invest solely in Hong Kong properties, while other markets allow overseas properties as a part of a REIT portfolio. Do you think this would hurt Hong Kong's competitiveness?
A: It would not be a big problem as most REITs in the other markets initially hold only local properties. Also, the SFC has said it would review ... the geographical restriction after a period of time.
Q: Do you think the REITs are launching at the wrong time, given that Hong Kong property has lost 60 per cent of its value since 1997?
A: REIT investors are not chasing capital gains, but they would like to have the high yield and stable income. The yield and the length of the leases for the REIT properties are therefore of much more importance for investors to consider.
Q: The SFC has allowed hotels and recreation parks to be a part of a REIT portfolio. Do you think we'll see any REITs containing these type of assets in Hong Kong soon?
A: Hotel and theme park income fluctuate more compared with retail and office assets. In the US and Australia, we have seen shopping malls and office towers become more popular as REIT assets.
But with the Hong Kong REIT market still developing, it may be some time before we see hotel REITs.
Q: Do you think the Hong Kong government will use REITs to dispose of some of its assets?
A: It could be possible. The first two REITs launched in Singapore are also indirectly held by the Singaporean government.
Q: Did you have any personal investment in REITs?
A: I don't have many investments in REITs but my dad does invest a lot in [them]. He was a big ... fan long before I started to get involved ... He is a retired professor so REITs, which provide a long-term, stable high yield every year, would be suitable for him. I may invest further in REITs when I get closer to retirement.
