Spotlight REIT regimes

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Australia — There are a number of key factors that are currently shaping the performance environment and near-term outlook for the Australia REIT (A-REIT) market. Trends in valuations are driving new equity issuances and increasing M&A activity.

Canada — The Canadian real estate market is rapidly evolving into an institutionalized asset class. Institutions have their foot on the accelerator, real estate allocations are increasing in both the public and private markets, and there are no signs of this trend abating.

India — The Indian securities market regulator, Securities and Exchange Board of India (SEBI), authorized the framework for REITs and investment infrastructure trusts (InvITs) in India in September 2014, thereby paving the way for introduction of an internationally accepted investment structure in India.

In India, REITs have been created as vehicles for housing completed revenue generating assets such as commercial office property, while InvITs have been created as vehicles for revenue-generating infrastructure assets such as roads, highways, warehouses, etc.

Japan — The Japan REIT (J-REIT) market is developing rapidly along a similar path to the US REIT market due to growth as a result of active equity offerings, J-REITs’ active role in the real estate transaction market and diversification of property sectors.

Singapore — Since the launch of the first Singapore REIT in 2002, the REIT sector has become one of the biggest success stories of the Singapore Stock Exchange (SGX). Singapore REITs have since grown into a US$53b market, the sixth-largest market globally by market capitalization according to data compiled by Bloomberg. After Japan and Australia, Singapore now has the third-largest REIT market in Asia. It is twice the size of the Hong Kong REIT market, which ranks fourth.

UK — The legislation bringing REITs to the UK came into effect in January 2007, and now, nearly 10 years later, more than 80% of listed property companies (by value) that could convert to REITs have done so.

The early years for UK REITs were not easy. The onset of the financial crisis shortly after they were introduced led many to emergency rights issues with some not surviving in their previous form. The subsequent recovery in UK markets has seen REITs perform well, but an increasingly prominent role played by overseas investors in the UK real estate market — accounting for more than 50% of acquisition volumes since 2014 — has provided further challenges.

US — Between the start of 2014 and 8 July 2016, 38 activist shareholder campaigns have been launched against 35 listed US REITs. This represents almost one-fifth of activist campaigns against all companies as registered by ThomsonOne and S&P Capital IQ during this time frame.

The relative ease with which investors can form an opinion of company value in the real estate space may make REITs more susceptible to activist shareholders. Our research suggests this issue is nuanced; however, we have seen activists build a case for change across areas such as strategic direction, use of assets, liquidation or partial sales, debt reduction and share buybacks, and increasingly, corporate governance.