Properties on shorter lease tenures can be divested to end-users and owner-occupiers. In a recent transaction, a construction company acquired an industrial property in Tuas with 12 years of land tenure. The rationale, says a spokesperson, is that the outlay is lower than the rents over the 12 years.
There are many industrial manufacturers around who can either tender for a site, lease space, or, if they have a good business plan, apply to JTC to be allocated a new piece of land to construct a facility. “It goes back to the company’s cost of funds,” notes Tay.
Leasehold industrial properties in S-REITs were highlighted in a recent column by Chunkky Lim for EdgeProp Singapore titled The Melting Ice Cube. Lim says: “Portfolios of property can be packaged and sold on the Singapore Exchange — structured for liquidity, dressed in yield and marketed as instruments of stability. They promise visible cash flows and the discipline of listed governance. What the prospectus buries is the decaying lease. The asset is an ice cube; the cash flow is meltwater. Leasehold time doesn’t renew — it expires. Each year you own less, edging closer to JTC or the state reclaiming the land, sustained only by hope of a benevolent extension.”
Lim is referring to the prospectus of an industrial property S-REIT IPO with local properties. Boustead Industrial REIT is set to unveil its IPO prospectus shortly. Centurion Accommodation REIT was listed on Sept 25. Its domestic portfolio comprises five workers’ dormitories, Westlite Toh Guan, Westlite Woodlands, Westlite Ubi, Westlite Mandai and Westlite Juniper. Of these, the freehold land tenures of the Westlite Mandai and Westlite Juniper sites are owned by Lian Beng and Lien Properties, respectively.
Lian Beng has provided Centurion REIT with a 32-year lease ahead of the IPO for Westlite Mandai (Lian Beng owns the freehold tenure). Westlite Toh Guan has 28 years of land tenure remaining, Westlite Ubi has 18 years, and Westlite Juniper awaits a 50-year land tenure from Lien Properties. The annual values of the Toh Guan, Ubi, Mandai and Woodlands assets were provided by the client, according to the valuation reports. The Woodlands property has to reduce its bed count — but this was flagged at the IPO. Some market watchers have said this is within acceptable methods.
Centurion’s local properties — with land tenures ranging from 18 to 32 years — have capitalisation rates of 6.65% to 7.25% and discount rates averaging 7.75%.
Whether Lim was referring to Centurion REIT and Boustead Industrial REIT in particular or industrial REITs in general, we do not know.
However, Tay has very clear views on land tenures. He believes the Master Plan gives industrial REIT managers such as himself certainty on land use and where the land is located.
JTC has announced that landlords and businesses can apply for land lease renewals 10 years from expiry, but no later than three years before expiry. The maximum renewed lease term would be up to 20 years, subject to ITC’s assessment of the strength of the business and redevelopment plans, as well as the government’s long-term plans for the site.
For instance, One-North and Science Park, which are hubs of innovation, tech, and life sciences, are likely to continue to grow as part of this cluster. Tuas and Jurong West, since they are near Tuas MegaPort and Seatrium’s state-of-the-art shipyard, are likely to remain host to logistics clusters.
“Singapore is quite clear. You do get your extension. Obviously, you also know that the government may take back the land. If the entity or owner has done their research, they should know. The pricing is up to the chief valuer. There is no price list. External valuers use the same data as the chief valuer. It depends on the prevailing transaction at the time,” adds Tay.
Because of its size, CLAR can divest assets where it believes the upside is limited and acquire assets that are accretive to distributions and net asset value. CLAR has $396 million worth of ongoing divestments expected to be completed in 4Q2025. Year-to-date, CLAR announced eight divestments totalling $498 million, all at premiums to market valuations. This year, CLAR has also acquired $1.3 billion properties in Singapore.
Portfolios may need to be of a certain size before a portfolio manager can juggle leasehold, long-term land tenures, and freehold properties, ensuring the portfolio is sufficiently diversified to withstand interest rate and other shocks and property cycles.
Lim should ensure his melting ice cube sits in a glass of fine malt whisky, such as a 25-year-old Glengoyne, so that the whisky or its yield remains for a long time after the ice has melted.
We will explore internal versus external. Stay tuned.
