Singapore has established itself as a center for the listing of real estate investment trusts (REITs) and business trusts (BTs). With its track record and experience with REITs and BTs, Singapore is similarly well placed to take the lead in the listing of Shariah compliant REITs and BTs.
This was identified as an area of potential development in Singapore from as early as 2005. At his opening keynote address at the Asian Banker Summit 2005, Ong Chong Tee, the deputy managing director of the Monetary Authority of Singapore, expressed the view that REITs appeared to be a form of financial instrument that could be easily packaged to be Shariah compliant as they are backed by an underlying portfolio of real estate assets and have an element of risk sharing. One key example demonstrating Singapore’s strength as a center for the listing of REITs and BTs is the listing of the Sabana Shariah Compliant Industrial (Sabana) REIT in 2010.
REITs and BTs
Singapore has 23 REITs currently listed on the Singapore Exchange Securities Trading (SGX-ST). Since the first REIT listing in Singapore in 2002, the Singapore REIT market has grown exponentially to become the largest REIT market in Asia ex-Japan. As of March 2011, the then 22 REITs listed on the SGX-ST had a combined market capitalization of SG$36 billion (US$28.5 billion).
Singapore has more than 10 registered BTs, with the first being listed as recently as 2006. The most recent significant addition to this list was the listing of Hutchison Port Holdings Trust in early 2011. Hutchison Port Holdings Trust, the first publicly traded container port business trust, raised US$5.5 billion in its initial public offering: the largest in Singapore and Southeast Asia to date and one of the largest IPOs in the world in 2011.
Singapore’s reputation as a market leader for the listing of REITs and BTs means that it is in a prime position to capitalize on its expertise and reputation to establish itself as a center for listing Shariah compliant REITs and BTs.
Sabana REIT
Sabana REIT is Singapore’s first certified Shariah compliant REIT and is also the largest listed Shariah compliant REIT by assets globally. The initial public offering of Sabana REIT in 2010 raised gross proceeds of approximately SG$664.4 million (US$526.9 million) and was awarded the IPO Deal of the Year Award 2010 and the Real Estate Deal of the Year Award 2010 by Islamic Finance news.
To be Shariah compliant, Sabana REIT is managed in accordance with Shariah investment principles and procedures. An important feature in this regard is Sabana REIT’s independent Shariah committee, an external committee comprising three independent Shariah scholars appointed by the manager of Sabana REIT. The independent Shariah committee advises the manager on Shariah-related matters relating to Sabana REIT and continuing Shariah compliance by Sabana REIT, including in relation to the permitted usage of its REIT properties and also its debt facilities.
This involves the independent Shariah committee issuing specific guidelines on Shariah compliance, which have to be observed by the manager. Such guidelines lay down restrictions on the type of non-permissible activities in relation to the REIT properties, such as those activities relating to gaming, non-Halal production, tobacco–related products and non-Shariah permitted entertainment services. Sabana REIT is also required to ensure that the total rental income from lessees, tenants and/or sub-tenants engaging in such non-permitted activities do not exceed 5% of the gross revenue of Sabana REIT.
Unlike in certain other jurisdictions, the regulators in Singapore do not prescribe minimum standards for the Shariah compliance of REITs. In the case of Sabana REIT, a stricter Shariah compliance standard following that practiced in the GCC was adopted, meaning, for instance, that there is a lower 5% threshold for gross revenue arising from non-permissible activities, as compared to the minimum threshold in other jurisdictions.
Sabana REIT is also the first REIT in Singapore to have taken up Shariah compliant debt financing. In 2010, the Sabana REIT entered into a committed three-year secured commodity Murabahah facility of up of SG$256 million (US$203 million). Additional commodity Murabahah facilities of approximately SG$144 million (US$114 million) were also made available to Sabana REIT in 2011, comprising both term and revolving commodity Murabahah facilities.
In total, the Sabana REIT has commodity Murabahah facilities of approximately SG$365 million. This innovative Murabahah facility provides Sabana REIT with the flexibility to effectively execute future acquisitions without needing to raise additional equity. The Sabana REIT experience vividly illustrates Singapore’s potential to become a hub for the listing of Shariah compliant REITs and BTs.
Conclusion
The success of the Sabana REIT in Singapore is a sterling example of how the fields of REITs and BTs can be tapped for the Islamic finance markets. It demonstrates the development and growing maturity of the Islamic finance ecosystem in Singapore, with favourable market conditions, regulatory and tax environments coming together to provide a highly suitable ground for the listing of REITs and BTs in Singapore.
Yeo Wico is a partner at Allen & Gledhill. He can be contacted at
[email protected]
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