Morgan Stanley may hand over to creditors its US$2.4 billion investment in a chain of Japanese hotels when the debt becomes due in April, The Wall Street Journal said yesterday, citing people familiar with the matter.

Morgan Stanley acquired the chain of 13 hotels from All Nippon Airways in 2007, in what was then the biggest hotel transaction in Asia. Since then, property prices worldwide have dropped sharply.

However, two of the main lenders in the purchase, Citigroup and Shinsei Bank want Morgan Stanley to put more equity into the property, for more security against declining prices, the paper said. So far, Morgan Stanley has been reluctant to do that, the paper said. Officials for Citigroup and Shinsei declined to comment. No one was available for comment at Morgan Stanley.

Another lender, GIC – an investment arm of Singapore’s government, is interested in taking over the hotels from Morgan Stanley and is currently in discussions with the other lenders, the paper said, citing one person. An official for GIC declined to comment.

Source: Business Times, 18 Feb 2010

In the hard, exhaust-choked reality of his days trawling Longhua’s clogged roads, taxi driver Zhang Bo’s ambition to buy a small flat for his young family has slipped out of reach for now.

Like many Chinese who covet real estate as a symbol of stability and social stature, Zhang is dismayed at the alarming climb of apartment prices in his adopted city of Shenzhen in southern China.

‘People can’t afford new flats anymore,’ said Zhang, 28, who drives a taxi to make ends meet after his small electronics factory went belly-up during the financial downturn last year.

‘It’s a very distant goal for us. Something we can only dream about,’ said the spiky-haired native of Hubei province, who takes home around 6,000 yuan (S$1,200) in cab fares a month.

He likes to joke that he now has to work three months just to buy one square metre of residential space in the city’s suburbs.

As one of millions of workers gravitating to China’s major cities in search of work and opportunity, Zhang’s plight mirrors the dilemma faced by many Chinese who are beneficiaries of the country’s economic rise, but who are nevertheless finding it increasingly difficult to own a roof over their heads.

‘The affordability is deteriorating because of the rapidly rising prices and increasing mortgages for home buyers, particularly for investors,’ said Xavier Wong, head of research for greater China at property consultant Knight Frank.

In January, property prices in 70 cities across China rose 9.5 per cent from a year earlier. The eighth consecutive year- on-year rise added to worries of a real estate bubble.

Stephen Green, a China economist at Standard Chartered noted in a report in early February that at least seven cities saw land prices triple in 2009. ‘This is clearly bubble territory for the land markets in many cities,’ he wrote.

The property bubble has become a hot social topic, spawning TV shows, Internet chatter, books and buzzwords such as ‘house slaves’, while the growing ranks of hard-up Chinese couples opting to marry without a home, car and other traditional middle class trappings are dubbed ‘naked marriages’.

A popular TV drama called ‘Dwelling Narrowness’, depicting the tribulations of a family in a city modelled on Shanghai struggling to buy their own apartment, was yanked from the airwaves in some places, hinting at government sensitivities towards the subject matter.

The migration of grassroots families and graduates in major cities to cheap, rented digs on urban fringes, could pose a socio-economic challenge for the government as the middle class malaise could fuel protests and threaten Communist Party rule.

Risks of an asset bubble forming have prompted Beijing to tighten monetary policies to help cap price rises in land and residential markets, with major developers, such as China Vanke watching future policies closely.

For the second time this year, China last week raised the level of reserves banks must hold in a move that could dent demand for risky assets.

Analysts said the government could deploy other tools as well, such as mortgage rates, lifting downpayments of second homes and slapping a property tax to cool the sector.

The measures appear to be working, with sales of new and existing homes down across the country in January, leading to dampened sentiment and a slide in prices in some cities.

Analysts say, however, that the government may not be able to rein in the property sector too aggressively since it is a main pillar of the economy with its investments accounting for over 10 per cent of gross domestic product.

‘The central government is trying to get the price down for a short period of time. They’re squeezing out the people with money to allow the middle class to be able to afford (property) again,’ said Andy Xie, an independent China economist.

‘(But) the local developers who have liquidity know the game. They’ll be asking why should I discount now and sell to poor people when I know the government will come around and open this up again so that they can sell to rich people again.

‘It’s very much a political economy thing,’ he said.

Analysts said a common way of calculating affordability of housing was to measure the percentage of monthly household income needed to pay up mortgage instalments and anywhere between 30 and 40 per cent was deemed reasonable in Asia.

‘You will find that the ratio (in China) is very, very high. (It’s) very unaffordable because a lot of cities – we’re talking about 60 per cent to 70 per cent of their monthly household income – needs to be used for monthly mortgages,’said Wee Liat Lee, an analyst at Nomura International.

‘But the problem with this measure is that you forget the fact that income is extremely skewed in China,’ he said, referring to the ability of many home buyers to pay for their apartments due to the one-child policy, with parents and grandparents pooling their savings to fund the purchases of the only children who are now old enough to own homes.

Overall, analysts say housing prices may rise further, though at a more modest pace than last year as the government is pushing for more affordable housing to hit the market later this year.

Source: Business Times, 18 Feb 2010

Suria KLCC, Malaysia’s premier retail centre at the iconic Twin Towers complex, is facing a revolt from several of its most established tenants. They are opposing sharp spikes in rental rates and a reorganisation plan that will force many of them to relocate to higher floors.

Over the past year, the mall’s top Malaysian tenants, including luxury brand operators like Royal Selangor Pewter, British India and the Valiram Group, have rebuffed demands by Suria to accept new tenancy terms.

And they have turned to several of the country’s top politicians, including former premier Mahathir Mohamad, to intervene in the dispute, according to correspondence reviewed by The Straits Times.

The retailers say their businesses, which have been hit by the economic downturn, cannot absorb the higher rental rates proposed by Suria.

They are also arguing that Suria’s plan to relocate outlets of several of Malaysia’s home-grown luxury brands, which are now found alongside international high-end brands, to higher floors will further hurt their businesses.

Already, one tenant – British India – has taken its fight to the Malaysian courts with an injunction against Suria to challenge the planned rental hikes and the relocation of its store from the first floor of the six-storey mall to the third level.

While most tenants remain cagey about their rental rates at Suria, documents reviewed by The Straits Times revealed that British India, which also has outlets in Singapore, had its rental rates increased by 33.7 per cent last year and its service charges raised by another 5.1 per cent.

Suria chief executive officer Andrew Brien declined to comment on the criticisms by several tenants over the retail outlet’s rental review and reorganisation of tenants, noting that ‘commercial confidentiality is paramount’.

But Mr Brien, who described Suria KLCC as an ‘iconic international trophy asset’, stressed that the mall was managed to protect and enhance the value of the property.

‘Decisions with regard to managing the assets have to be made for the general good rather than the individual good,’ he said in a recent interview.

Most retailers involved in the face-off with Suria declined to be interviewed or were willing to discuss the issue only on the grounds that they not be named, for fear they may jeopardise already tough negotiations on the renewal of their leases.

Aggrieved tenants argue that Suria and its extremely profitable controlling shareholder, Petronas, should sacrifice their drive to maximise profits and adopt a more flexible business stance to help develop local brands and showcase their products alongside those of international brands such as Louis Vuitton and Tiffany & Co.

‘It is not a question of subsidising local businesses, but there is a strong argument for the mall to adopt a multiple agenda to have a mix of domestic businesses operate alongside international brands,’ said a manager of a local retail outlet who spoke on condition of anonymity.

But proponents of Suria’s management said the mall was not discriminating against Malaysian home-grown brands.

‘There is a science to managing a retail centre and making sure that the client mix and the allocation of space meet with what customers are looking for,’ said a senior Petronas executive who has been tracking developments at Suria since the spat began with several of the mall’s tenants.

He added that Suria was managed as a business and there was ‘a long queue of locals businesses that will take up space based on the rentals set by the management’.

‘For the past six years, Suria’s occupancy has never dropped below 99 per cent. If the mall was doing something tragically wrong, it wouldn’t be achieving those kind of numbers,’ he said.

Suria is 60 per cent owned by Malaysia’s national oil corporation Petronas, which built the Kuala Lumpur City Centre Twin Towers, while the remaining 40 per cent is owned by ING Real Estate of Singapore.

It also ranks as one of Malaysia’s most profitable retail establishments. With roughly 1 million square feet of net retail space available for rental, the six-storey mall attracts about 100,000 visitors daily and rakes in roughly RM1.8 billion (S$743 million) in rental revenue annually for its shareholders, according to company executives.

Unlike other retail centres in Kuala Lumpur, which require costly marketing campaigns to attract customers, real estate industry executives said Suria’s unique location at the foot of the Twin Towers makes it a natural destination for tourists and shoppers.

‘The mall benefits from all the national campaigns that promote Malaysia as a destination, because the Twin Towers is always used to identify the country,’ said the chief executive of a foreign-owned real estate agency in Kuala Lumpur.

Source: Straits Times, 18 Feb 2010

A successful merger would make Simon the biggest mall operator in US

After months of speculation, the Simon Property Group on Tuesday finally made an unsolicited US$10 billion offer for General Growth Properties, its bankrupt rival. But General Growth quickly rebuffed the approach, calling the bid too low.

If successful, the move would make Simon the biggest mall operator in the country, controlling about 30 per cent of malls in the United States, according to analysts from Bank of America Merrill Lynch.

Merging the two companies, whose portfolios are roughly the same size, would also unite two of the most well-known names in the business.

In a letter sent to Simon late on Tuesday, General Growth’s chief executive, Adam Metz, said that he would welcome discussions within the confines of the bankruptcy process.

‘We and our board of directors have given considerable thought to your indication of interest and have concluded based on discussions with other interested parties that it is not sufficient to pre-empt the process we are undertaking to explore all avenues to emerge from Chapter 11 and maximise value for all the company’s stakeholders,’ Mr Metz said.

A merger would allow General Growth to finally remove itself from a 10-month, complicated Chapter 11 case. Begun 56 years ago as a shopping centre in Iowa, General Growth grew to be one of the nation’s biggest mall companies, operating prized malls like the Ala Moana Center in Honolulu, only to run aground because of debt troubles after acquiring the Rouse Co for US$12.6 billion in 2004.

Simon Property, whose chief executive, David Simon, is the scion of the company’s founding family, is regarded by analysts as one of the best-managed mall operators in the business.

Over the last year, Simon Property has been building up its war chest to prepare for acquisitions to take advantage of depressed commercial real estate prices, with General Growth squarely in its sights. It said on Tuesday that its offer would be largely financed by its cash on hand and existing credit agreements.

‘They’re the most logical strategic bidder in the whole world for General Growth,’ said James Sullivan, a managing director at Green Street Advisors, a real estate research firm. Mr Sullivan added that other mall operators might be interested in buying pieces of General Growth’s portfolio.

Simon’s move is meant to pre-empt General Growth’s own plan to emerge from bankruptcy, which may include financial help from another mall operator, Brookfield Asset Management, that owns some of its unsecured debt. A hearing on General Growth’s motion to extend the exclusivity period for its plan of reorganisation is scheduled for Monday in federal bankruptcy court in Manhattan.

Simon is portraying its offer as speeding General Growth’s exit from Chapter 11 by paying off US$7 billion in unsecured debt in full and in cash and by assuming about US$21 billion in secured debt. Under the terms of its proposal, Simon would pay about US$6 a share in cash. It would also distribute ownership in General Growth’s planned community development, valued at about US$3 a share.

‘Simon is in the unique position of being able to offer General Growth creditors and shareholders full, fair and immediate value,’ David Simon said in a statement. ‘Our offer provides much-needed certainty to conclude General Growth’s protracted reorganisation process.’ General Growth’s official unsecured creditors committee said in Simon’s statement that it was encouraging talks between the two companies.

In the world of mall operators, gaining size and scale gives companies greater bargaining power over their tenants, especially the national retailers whose stores serve as anchors.

For Simon, which owns many outlet malls as well as some marquee names like Copley Place in Boston, the merger would also present a more formidable rival to other owners of shopping real estate, including Wal-Mart and operators of strip malls and lifestyle centres, Mr Sullivan said. ‘In the mall business, being bigger is better,’ he said.

Advisers for the two companies have met several times in the last few months, according to a person briefed on the matter.

Last week, Simon executives formally presented their offer to General Growth’s chief executive, lead independent director and advisers to discuss its takeover proposal. While advisers for the two companies have talked since then, Simon made the matter public after it received no formal response to its offer.

One question is how one of General Growth’s biggest stakeholders, the hedge fund Pershing Square Capital Management, will respond to Simon’s offer. In a December presentation, Pershing Square’s head, William Ackman, said that based on a comparison with publicly traded rivals, he believed General Growth was worth at least US$24 a share.

Simon is being advised by the investment banks Lazard, JPMorgan Chase and Morgan Stanley and the law firm Wachtell, Lipton, Rosen & Katz. General Growth’s advisers include the investment banks UBS and Miller Buckfire and the law firm Weil, Gotshal & Manges.

Source: Business Times, 18 Feb 2010

The London recording studio immortalised by the multi-million-selling Beatles album of the same name has been put up for sale by its owners.

Debt-laden music company EMI is seeking buyers for Abbey Road Studios, a mecca for Beatles fans around the world who pose for photographs imitating the picture on the 1969 Abbey Road album cover which shows Paul, John, George and Ringo strolling over a pedestrian crossing outside the studio.

EMI is talking to a few interested parties about selling the North London studios, but a deal is not imminent, a person familiar with the situation told Reuters.

The company and its private equity owner Terra Firma declined to comment.

Abbey Road, which began life as a Georgian town house built in 1831, has an impressive history aside from the Beatles, who recorded most of their 1960s hit singles and albums there under the direction of EMI house producer George Martin.

Its walls have also echoed to music performed by classical composer Edward Elgar, rock bands Pink Floyd and Radiohead, violin maestro Yehudi Menuhin, 1980s bands Spandau Ballet and Simple Minds, as well as Mike Oldfield and Jeff Beck.

A sale that includes the brand could raise £25 to £30 million (S$55.5 million to S$66.4 million), the person said. Terra Firma recently told investors it needed more than £100 million to stop EMI breaching banking covenants.

£4 billion deal to buy the record label in 2007 has come to epitomise the woes of buyout deals done at the private equity bubble, with a high debt burden and a weak performance crippling the business.

The investment has been so tumultuous for Terra Firma that it recently launched a lawsuit against Citigroup claiming the US bank inflated the price of the business during the sale process by not revealing the only other bidder had withdrawn from the auction. Citigroup denies the allegations.

Former Beatle Paul McCartney hopes that the band’s historic studios could be saved.

‘There are a few people who have been associated with the studio for a long time who were talking about mounting some bid to save it,’ McCartney told BBC television on Tuesday.

‘I sympathise with them. I hope they can do something, it’d be great . . . It still is a great studio. So it would be lovely if somebody could get a thing together to save it’.

Source: Business Times, 18 Feb 2010

Healthy demand for industrial properties expected in 2010, say analysts

JTC Corp yesterday said that net allocation of its ready-built facilities (RBF) returned to positive territory in Q4 2009. In the first three quarters of 2009, net allocation was negative as termination outstripped gross allocation.

But net allocation for the whole of 2009 was still negative as the group’s properties were hit by weak global economic conditions.

Net allocation was negative 24,800 square metres in 2009. By comparison, net allocation was a positive 90,700 sq m in 2008.

But in Q4, net allocation was a positive 2,100 sq m. Net allocation was negative 8,900 sq m in Q1, negative 7,800 sq m in Q2 and negative 10,300 sq m in Q3.

The occupancy level at the RBF also rebounded slightly in Q4, climbing up 0.1 percentage point from Q3 to end 2009 at 97.2 per cent.

Year-on-year, the occupancy level rose by 0.4 percentage points. The drop in demand over the year was offset by lower supply as stock was retired for product renewal, JTC said.

Analysts have said that the industrial sector here could see a turnaround this year.

‘A healthy demand for industrial properties is expected in 2010 and rents are projected to begin their upward climb in the second half of the year,’ said CB Richard Ellis in its Q4 2009 report on the Singapore market.

DTZ likewise predicted that the industrial market may see a turnaround in 2010 with rental decline easing off gradually and rents bottoming by the end of this year.

Within the RBF, the business park segment experienced the biggest year-on-year fall, with net allocation dropping to 1,100 sq m in 2009 from 48,300 sq m in the previous year.

However, the decline was from an exceptionally high base in 2008 which benefited from the completion and take-up of Fusionopolis Phase 1.

Fusionopolis phase 2A is currently under construction and is expected to be completed by 2014.

Net allocation for JTC’s prepared industrial land (PIL) managed to stay in positive territory in 2009. Net allocation for this segment came to 101 ha in 2009, compared to 200.9 ha in 2008.

The performance, which JTC said was ‘resilient’, was supported by a significant allocation in the fourth quarter of 2009 for the integrated yard facility in Tuas as well as steady take-up for Seletar Aerospace Park. Net allocation for Q4 2009 was 105 ha.

Overall, gross allocation of PIL fell 34 per cent to 175.6 ha in 2009 while termination increased 17 per cent to 74.7 ha. A large proportion – 44.6 ha or 60 per cent – of the land terminated came from the manufacturing sector.

Within manufacturing, the electronics segment registered the highest termination with 23.9 ha given up, followed by the precision engineering segment with 7.3 ha terminated.

A total of 30.1 ha – or 40 per cent – of PIL termination came from the manufacturing related & supporting industries sector.

Source: Business Times, 18 Feb 2010

13.69ha residential plot costs 3.8b yuan, expected to yield at least 2,000 units

YANLORD Land Group and Ho Bee Investment have jointly acquired a 13.69 hectare prime residential site in Qingpu District, Shanghai, for 3.82 billion yuan (S$785 million) at a public land auction.

With a total planned gross floor area of 246,487 sq m, the purchase price equates to 15,498 yuan per sq m.

Yanlord, through its subsidiary Shanghai Yanlord Yangpu Property Co, will have 60 per cent equity in the project, while Ho Bee will have 40 per cent.

The project is expected to generate at least 2,000 units to be launched in phases over six to eight years, with initial sales to begin in two years, Ho Bee executive director Ong Chong Hua told BT.

The development cost, according to market sources, could run to about 23,000 yuan per sq m – which will be shared between the two developers on an equitable basis. The units could be sold at an average price of at least 35,000 yuan per sq m, market sources indicated.

‘We are confident this project will be well received by home buyers seeking to live in a conducive international community and will contribute positively to Ho Bee’s future developments and initiatives within the Greater China market,’ said Chua Thian Poh, Ho Bee’s chairman and chief executive officer.

The latest acquisition extends an earlier collaboration between China-focused Yanlord and Singapore developer Ho Bee in Tangshan. Last October, their Singapore joint venture company Yanlord Ho Bee Investments signed a memorandum of understanding with the Tangshan Nanhu Eco-city administrative committee to explore developing a high- end residential project in Nanhu Eco-City.

Zhong Sheng Jian, Yanlord chairman and chief executive officer, said the group is confident the latest joint acquisition in Shanghai will contribute significantly to Yanlord’s growth.

Given the growing scarcity of sizeable prime residential development sites in Shanghai’s city centre, the acquisition ‘presents a unique opportunity for investment in large-scale high-end residential developments’, he added.

Situated 5.5 km from the heart of the Hongqiao Commercial District, the Qingpu site is expected to tap the district’s emergence as an integrated financial, commercial and logistics hub servicing the Yangtze River Delta region.

It will also benefit from strong connectivity, through the city’s metro network, key thoroughfares and railways such as the Beijing-Shanghai and Shanghai-Hangzhou express lines.

‘It’s a good collaboration,’ Ho Bee’s Mr Ong said. ‘Yanlord have done quite a number of high-end residential projects, in fact townships, and we hope to leverage on their experience and the premium branding they have. Most of Yanlord’s projects are sold at a premium.’

Source: Business Times, 18 Feb 2010

Two of them will be funded from recent share placement

ASCENDAS Reit (A-Reit) yesterday announced plans to buy three properties for a total of $228.5 million, to further diversify its portfolio of properties and their tenant-mix.

A-Reit’s manager said that it has signed two separate sales and purchase agreements, and a memorandum of understanding to purchase a property still under development.

Under the first two, A-Reit will acquire two industrial properties for a total of $131 million – the nine-storeyed DBS Asia Hub at Changi Business Park for $116 million, and a multi-storeyed light industrial building at Joo Koon for $15 million.

These acquisitions would have added 0.054 cents to A-Reit’s distribution per unit for the financial year ended March 31, 2009 on a pro-forma basis. They would also raise A-Reit’s assets under management by about 2.8 per cent.

Financing for both will come entirely from 44 per cent of net proceeds from A-Reit’s private placement last August. After these acquisitions, funds from the placement would have been fully utilised, the Reit’s manager said.

The first deal is an interested party transaction, as DBS Asia Hub will be bought from Ascendas (Tuas), a wholly owned subsidiary of A-Reit’s controlling unitholder Ascendas Land Singapore. Subject to JTC’s approval and other conditions, the manager expects this transaction to be completed by April.

DBS currently has a 10 years and one month lease on the property, with annual rental escalation and an option to renew the lease for another three terms of three years each.

Under the second agreement, Flextronics Manufacturing will lease the Joo Koon property for five years with annual rental escalation and an option to renew the lease for another three two-year terms.

The third signing was an MOU to purchase for $97.5 million a Jurong property. This is to be completed in 2011 or 2012 and will only be acquired then.

A-Reit now has total assets of about $4.8 billion in its portfolio of 91 business and science park and industrial properties, as well as logistics and distribution centres. Its unit price gained two cents to close at $1.92 yesterday.

Source: Business Times, 18 Feb 2010

I REFER to yesterday’s letter by Mr Dennis Lee, ‘Distressed by divisions’, and agree it is unhealthy to create an artificial divide between those who rent and those who buy an HDB flat.

The image of HDB rental flat dwellers has been created by the application criteria and the design of the flats, typically the one-bedroom type sharing a long common corridor. Apart from the HDB application criterion of a household income of $1,500, other factors can better describe the fabric of this close-knit group of citizens, which Mr Lee aptly describes: ‘We knew our neighbours well and even exchanged gifts on festive occasions.’

These include their past contribution to nation building, residents’ knowledge of one another in the community, their fluency in dying dialects, their participation in activities that promote social cohesion, their culinary skills in disappearing local dishes, the success of their children like Mr Lee, and their performance in the town council maintenance assessment.

Perhaps HDB can consider building bigger units among rental flats to change the image of HDB tenants from that of low-income families to occupants of choice housing.

Patrick Sio

Source: Straits Times, 18 Feb 2010

GLOBAL economic woes triggered a lower take-up of industrial space last year at landlord JTC Corp.

It was hit by a negative net take-up of 24,800 sq m in ready-built factory space last year; a sharp reversal of the positive net take-up of 90,700 sq m seen in 2008.

In prepared industrial land, net take-up was still positive at 101ha last year, although much lower than the 200.9ha in 2008.

Faced with extremely cautious business sentiment during the year, companies took up less space. Ready-built factory space was down on the previous year partly because of a downturn in the business park segment. It saw net take-up in this category drop to 1,100 sq m last year, from 48,300 sq m in the previous year.

JTC explained, however, that the drop in ready-built factory space take-up ‘was from an exceptionally high base in 2008, which benefited from the successful completion and take-up of Fusionopolis Phase 1′.

Termination of its ready-built facilities fell by 18 per cent to 88,800 sq m last year from 108,000 sq m in 2008. About 61 per cent, or 53,900 sq m, of the total of ready-built facilities were terminated by tenants from the manufacturing sector.

Within manufacturing, the precision engineering and electronic segments reported terminations of 17,000 sq m and 16,200 sq m respectively.

Take-up in the prepared industrial land category remained resilient, according to JTC. It said the performance in this category was boosted by a significant fourth-quarter take-up for the integrated yard facility in Tuas, as well as steady take-up for Seletar Aerospace Park.

Last year, the manufacturing sector accounted for 60 per cent of the prepared industrial land that was terminated. The electronic segment of manufacturing registered the highest termination, with 23.9ha given up.

Source: Straits Times, 18 Feb 2010