Singapore's GIC RE unfazed by $360m hit

Singapore's GIC RE unfazed by $360m hit

Florence Chong | March 12, 2009
Article from: The Australian

IN less than a year, one of the world's top 10 property investors, the Singapore-based GIC Real Estate (GIC RE),has lost more than $360 million in just two investments in Australia.

The losses stem from the collapse in the unit prices of GPT Group and Mirvac Group. GIC RE invested a total of about $585 million in these two listed entities.

With a property portfolio worth more than $3.5 billion in Australia, GIC has yet to crystallise potential losses in its direct property holdings in Australia.

Its losses from investment in listed entities in Australia have come as part of its $S50 billion ($51 billion) writedown across all GIC investments, including real estate.

The Singapore behemoth took up 300 million GPT securities at the issue price of 60c a piece in addition to a $250 million placement last October.

It has already acquired a 1.9 per cent stake in the trust at prices ranging from $1.96 to $1.45 a share.

GIC RE is now the single largest shareholder in GPT, with a stake of more than 13 per cent.

It also has a holding of about 6 per cent in Mirvac, accumulated over several months last year, and took part in its $500 million capital raising last November.

When contacted by The Australian for comment on its Australian holdings, a spokeswoman for GIC said: "GIC Real Estate does not comment on the specifics of our investments."

At the time of its investment in GPT, GIC RE president Seek Ngee Huat said: "We see this partnership with GPT as a good fit, and an important part of ourinvestment strategy in Australia."

Dr Seek added: "The investment we have made is through convertible preferred securities and participation in the rights issue, which will give us appropriate downside protection as well as the opportunity for upside in capital appreciation."

Mostly, GIC RE's exposure in Australia is in direct property, including a half share in Westfield's Parramatta shopping centre, in Sydney's west, and a third share in the purchase and redevelopment of the Myer department store site in central Melbourne.

Industry experts said property values across the board would inevitably fall by at least 10-15 per cent, possibly more, in the current downturn.

According to its joint venture partner Westfield Group in its full-year results last month, the value of its half share in the Westfield Parramatta shopping centre had fallen from $753 million at the end of 2007 to $711.1 million a year later.

GIC acquired a third share in the purchase of the former Myer department store in Melbourne for $276 million.

Its total investment upon completion of the redevelopment would be close to $500 million, according to sources close to the project.

Colonial First State Retail Property Fund, a one-third shareholder of the property, has taken an impairment charge of $15million for its stake of the project.

The value of GIC RE's prime Sydney investment, including the Queen Victoria Building and Strand Arcade, will almost certainly have softened from the peak of the cycle, but it is unclear to what extent.

All in all, however, the losses GIC RE incurred in Australia are just a small fraction of the sovereign wealth fund's overall losses from its global investment in the past year.

Singapore's Minister Mentor Lee Kuan Yew said the Government of Singapore Investment Corporation (GIC) -- the parent of GIC RE -- had lost about 25 per cent of its value from its peak in 2007.

The exact value of GIC's investment is not known, although "about $S200 billion" is a figure often quoted.

And based on that figure, the losses would be about $S50 billion, which was first reported last month when Dow Jones Newswires quoted sources as saying GIC's investment losses were estimated at about $S45 billion to $S50 billion.

GIC, which manages Singapore's foreign exchange reserves, has 23 per cent of its portfolio invested in real estate, private equity and venture capital.

The balance is invested in equities and bonds, mainly in the US (34 per cent), Asia (23 per cent) and Europe (35 per cent).

Mr Lee, the founding leader of Singapore who was behind the creation of GIC, said last week: "We expected the market to go down in equities."

He said GIC reduced equity holdings by 15-16 per cent and was cash-rich and able to pick up stocks such as UBS and Citi when the market fell.

Ironically, it was its investments in Citigroup, and financial institutions such as Merrill Lynch and UBS, which had contributed to the bulk of its losses because of the collapse in their share prices. For instance, it invested $US6.88 billion ($10.73 billion) in Citigroup in January last year. Today, its 5.3per cent stake is worth just over $1 billion.

However, it converted its stake of preferred shares in Citigroup into common stock at $US3.25 per share.

The conversion reduced its paper losses on the investment from 80 per cent to 24 per cent.

It also invested $S14 billion in UBS in December 2007 and $US2 billion in Merrill Lynch.

Sources close to GIC said it was highly unlikely that it would sell its interests in Australia because of the losses incurred.

History has shown that GIC RE is a long-term investor, having sold only a few Australian assets, including 175 Liverpool Street in Sydney.

In 1997, it sold its interest in an AMP office and an AMP shopping centre trusts for a total of $35million. It still has a 25 per cent stake in Lend Lease's billion-dollar inner-city apartment development, Jackson's Landing in Pyrmont, which is currently selling its last 325 units.

But GIC RE is not retreating from property investment.

Two weeks ago, GIC settled a $US1.3 billion acquisition with the cash-strapped Prologis, the US-based industrial property developer/owner.

Prologis sold its assets in China and 20 per cent of its Japan property fund business to GIC to retire debt.

Between 2007 and 2008 alone, GIC RE spent $10 billion on real estate in key markets in Russia, Europe and Japan.

Australia was one of its earliest investment destinations.

This included a 75-25 joint venture with the US-listed Host Hotels and Resorts to invest in hotels in Australia and Asia.

Their set-up capital was $600 million, but with gearing it has a potential investment capacity of $US1.5 billion to $US2 billion.

Despite the odd market rumours that GIC RE is continuing to look at possible investments in Australia, it is almost certainly going to be more conservative in its approach in future.

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