REIT ASIAPAC MAGAZINE REITASIAPAC 3Q 2019 ISSUE | Page 6

REIT ASIAPAC OUTLOOK TEST OF J-REIT FRAMEWORK Before the August 30 meeting, Reit AsiaPac asked fund managers and analysts about their views of the potential merger, and many saw it as a positive move. Tim Gibson, Co-Head of Global Property Equities at Janus Henderson Investors told REIT AsiaPac before August 30 that the deal “is an important test of the legal framework, as well as Japan’s resolve to improve corporate governance.” Honmachibashi-tower “Whatever the outcome, J-REITs that are facing challenges in achieving growth on their own and have low market assessments of the value of their property holdings could also become the subjects of takeover proposals,” UBS’s Tokyo-based analyst Kazufumi Takeuchi told REIT AsiaPac ahead of the meeting. “This possibility could lead to further efforts to strengthen governance and raise their share prices through buybacks,” he added. Urban Park Daikanyama THE NEXT STEPS Outlook WHAT DOES THE FUTURE HOLD FOR HONG KONG? The territory, once known as the pearl of the orient, is fast losing its shine. Hong Kong REITs have fallen 16% since the protests started. Daniel Feldmann, a senior analyst at Timbercreek Asset Management, also favoured Star Asia Group’s merger proposal over Mirai’s. In his three years of coverage for Mirai, Feldmann said the company had been found to have debatable asset allocation decisions and weak shareholder alignment. Mirai, a Chinese-Japanese joint venture, also has the disadvantage of trading at a significant discount as certain investor groups do not fully understand or trust the Chinese backed J-REIT structure, he said. With the conclusion of the meeting, independent investment banks will now negotiate a merger agreement between the two companies, and that process “will happen over the next 45 days”, says MacLean. “We’ll look to execute a merger agreement as soon as possible.” MacLean stressed that the negotiations would be conducted at arm’s length. “The investment banks and financial advisers from both sides will need to report to the respective REIT board of directors to ensure that the final deal is fair to both set of unitholders,” says MacLean. He explained that separate teams from each REIT would be established to negotiate a deal to ensure compliance, prevent any cross-over of information flow “Just from a simple business combination point of view, I do not believe that there is going to be additional shareholder value created through a Mirai-Sakura Sogo REIT. I am very positive that Star Asia, as a significant shareholder of Sakura Sogo, can create more shareholder value in the long run in taking over the management of the combined vehicle,” Feldmann said before the August 30 meeting. and eliminate any conflicts. Star Asia expects the merger to conclude by early 2020, and the asset manager will seek to optimise the combined portfolio by trimming excess exposure and acquiring new assets and improve operating efficiencies in order to ensure sustainable DPU and NAV growth. In terms of Star Asia managing two REITs with similar mandates, Feldmann said that this is not something new. Other groups are managing different REITs as well, he said. Peter Murphy, Head of Asia – Sakura Real Estate Funds Management Inc., could not be reached for comments following the meeting. He told REIT AsiaPac in an interview before August 30 that Lion Partners and Star Asia’s approach “represents the abuse of minority unitholders’ rights to complete a hostile takeover. The reason why minority unitholders have these rights is certainly not to achieve the outcome set out by Star Asia.” He added that the outcome would make “management teams and asset management companies strive to do better to maximise unitholders’ value and focus on performance.” 6 June 2019 will go down in history as an important month for Hong Kong. Protests that initially targeted a law regarding extradition have evolved into a general movement about the political future of Hong Kong. At the time of writing, the protests are entering their third month. Multiple activities have been organised for By Victor Yeung, Chief Investment Officer, each weekend for up to a month in Admiral Investment advance. Because of this turmoil, we have received numerous enquiries from investors about the investment sentiment in Hong Kong. the city was called a “single-layer copper-ware pot” because even small changes in external news flow would trigger a rise or fall. We think that the Hong Kong market can manage the short-term volatility, as evidenced by the 2,000-point rise in the headline Hang Seng Index in June. We believe that part of the increase is attributed to the renewed trade negotiations between the U.S. and China. However, the gain also indicates that the Hong Kong financial market is deep enough to absorb much more uncertainty than before. Compared to two decades ago when NO END IN SIGHT ANYTIME SOON “There may have been some talks on transferring capital out of Hong Kong, but even the Monetary Authority of Singapore issued a statement to its banks specifically not to target this. Being a Hong Kong-headquartered firm, we have also received fresh reverse inquiries for real estate investment opportunities, showing that some investors are interested in increasing their allocation to the city.” However, the protests are likely to continue for three main reasons. Firstly, there is more staying power in the current movement, compared with the 2014 Umbrella protests. For 79 days, the 7