Speech by Ms Ho Ching at Ascott Residence Trust (ART) First Day of Trading Ceremony

SPEECH

31 Mar 2006

ASCOTT RESIDENCE TRUST (ART)
FIRST DAY OF TRADING CEREMONY
31 MARCH 2006 8:30 am
SINGAPORE EXCHANGE

Remarks by Guest of Honour
Ms Ho Ching
Executive Director & CEO, Temasek Holdings (Pte) Ltd

Mr Lim Chin Beng, Chairman of The Ascott Group;
Mr Lim Jit Poh, Chairman of Ascott Residence Trust Management Limited;
Friends, Ladies and gentlemen,

Good morning

Introduction
1 Dr Goh Keng Swee, the economic architect of Singapore, once said, “It’s better to have 10% of something than to have 40% of nothing”. Our corporate tax rate was at 40%, and we were grappling with the issues of survival and the British withdrawal. With that one insight, the Singapore Asian Dollar Market was born in 1968 with a concessionary tax rate of 10%. By end 2005, our Asian Currency Units stood at US$611 billion.

2 And thus, through various similarly pragmatic market responses, Singapore’s economy grew by an average of about 9% compounded for its first 30 years. Much of this was driven by a “can-do, must-do” pioneering spirit to turn dreams into reality, and setbacks into opportunities. Today, both Singapore and the region are in the midst of a second wave of growth, powered by the awakening of China and India through their drive for market reforms.

The Ascott Residence Trust (ART)
3 The launch of the Ascott Residence Trust this morning is very much a reprise of the Singapore pioneering spirit of never taking things for granted, and of a relentless commitment to look for path-breaking, pragmatic and systemic solutions.

4 It was with this same spirit that CapitaLand, the parent of Ascott, pioneered the first Real Estate Investment Trust (REIT) in Singapore 3 years ago. CapitaLand subsequently also won the international bid in Hong Kong to partner the Housing Authority for Hong Kong’s inaugural Link REIT .

5 The listing today of the Ascott Residence Trust (or ART for short) marks the first serviced residence REIT in the world. It is also notable for its pan-Asian portfolio of 12 properties spread across five countries at inception.

6 This novel investment product demonstrates that cross jurisdiction REITs can be done with the meticulous financial structuring of appropriate assets. It is another encouraging example of industry players working together with regulators and policy makers to structure innovative real estate financial products for the market.

The S-REIT Industry
7 The S-REIT industry in Singapore has grown quickly over the last 3 and half years. Its market capitalization had grown more than 18-fold from less than S$ 1 billion in July 2002 to nearly S$13 billion today.

8 The first REIT in Singapore took a full 6 years and many heart stopping and frustrating moments from conception to realisation. In contrast, it was a relatively short one year from concept to launch for the first pan-Asian REIT. Responsive regulators as well as nimble market players had gained confidence over the last 3 years. They made adjustments and improvements swiftly and proactively along the way.

9 For instance, recent regulatory and tax changes allow for partial ownership of properties and property companies in different countries. This facilitated the structuring of cross border REITs like the ART. As we know, cross-border property investments often involve joint ventures with local partners, or they could be limited by local regulations on full foreign ownership. The increase in gearing to 60% by the MAS also helps support borrowing in local currencies to mitigate exchange risks.

10 Overall, the latest MAS Guidelines enhance disclosure requirements for REITs and accommodate their overseas expansion. Oversight of REIT managers has also been strengthened. Such regulatory refinements will improve the management of S-REITs and make them more attractive to investors.

11 On the tax front, S-REITs have also enjoyed a number of attractive incentives. These include tax transparency; tax exemption on foreign sourced incomes; waiver of stamp duties for transferring properties into S-REITs; and waiver of GST for expenses incurred in holding overseas non-residential properties. These changes make it more cost efficient to structure cross-border assets into regional S-REITs.

12 However, I understand Singapore institutional investors have one more wish for their S-REIT portfolio. Local corporate investors continue to be subject to a 20% tax rate, while foreign corporate investors are taxed at a concessionary 10%. Perhaps the authorities could well revisit Dr Goh’s words. Indeed, when corporate income tax rates in Singapore were halved from 40% down to 20% between 1987 and 2004 , total corporate income tax revenues grew nearly 3 times from less than S$2 billion to more than S$6 billion over the same period. Thus, reducing the tax treatment for local corporate investors for their S-REIT portfolio will probably a tax gain move for the government.

13 With its integrity, its robust legal and regulatory systems, as well as its location at the cross roads of a bustling Asia, Singapore has the potential to be a major hub for 30-50 top quality regional REITs. Singapore has already made a good start by bringing quality assets to kick off this new class of investment product. It has since improved the various regulatory requirements such as disclosure, credit ratings, tax, and the treatment of regional assets. Retail investors in particular are also learning to be discerning investors.

14 As the REIT market develops, we should also encourage a wide range of different credit and risk profiles, different geographical and sectoral exposures. These will cater to a broad range of investor risk appetites while keeping the core characteristics of REITs as regulated yield-driven investments. The REIT investment structure can also harmonise well with the underlying principles of Islamic finance. Hence, we may yet see an Islamic REIT as one of the future offerings. The possibilities are exciting, thanks to a progressive, thoughtful and responsive regulatory team as well as to the innovative, nimble and responsible market players. Without being alarmist, this does mean retail investors will need to do their homework carefully to choose REITs which best suit their risk-reward appetites.

15 The innovations and improvements in Singapore have been noticed by others. In November last year, Standard & Poor’s recognised the leadership role that the S-REIT market plays in Asia. They wrote in their RatingsDirect article that “Singapore REITs are setting the standard in Asia for the long term development of a viable REIT market”.

Other Yield Driven Investment Opportunities
16 Apart from the S-REIT framework, I am also very encouraged to note the forward looking stance on the part of the MAS, the SGX and other authorities such as the IRAS. They have been proactive and decisive in supporting the growth of Singapore as a financial centre, especially in recent years.

17 Apart from the S-REIT products, a number of other innovative fund raising structures were also introduced in Singapore in the last year. For example, SGX listed its first infrastructure fund last year. It also covered a new innovative stapled-security utility product under SP AusNet .

18 The MAS has also introduced a new Business Trust framework. Trust laws have been updated and modernised. The business trust regulations allow a business enterprise or an infrastructure project to be configured into a trust structure. This allows for the separation of management control from the economic benefits of the business.

19 Distributions to investors are from cash profits as opposed to accounting profits. Hence, business trusts are particularly suited for operations with stable cash flows. Such concepts enable sponsors to fund infrastructure investments or monetize their assets, to create a new class of investment opportunities for both retail and institutional investors.

20 A study by the World Bank projected that US$1 trillion of infrastructure investments are needed in East Asia over the next 5 years . Coupled with the tax exemption on foreign-sourced income, the business trust can be another powerful financing structure for many of these regional infrastructure projects. Such investment and intermediation products would add diversity to our capital markets, helping Singapore to grow as a financing centre of choice for the region.

Conclusion
21 Ladies and gentlemen, Ascott has grown over the years. It has inherited and woven together the different threads of history, as owners of Liang Court, Somerset and Scotts Holdings put their assets together at the turn of the millennium. Today, Ascott manages nearly 16,000 service apartments in 40 cities across Asia, Australasia, Europe and the Middle East.

22 Each thread of Ascott’s history is a story of a passionate owner and visionary founder who saw opportunities, toiled to turn their dreams into reality, and worked to professionalise their businesses over the years.

23 The formation of the Ascott Residence Trust is yet another step in a continuing journey in the quest for excellence and service, as Singapore businesses evolve from local companies into regional or global players.

24 May I congratulate the Ascott Board and management as well as the SGX, and the various regulators and advisers on the successful creation and launch of the ART. I wish both the ART and its shareholders the very best for their journey ahead.

25 Thank you.