You must be living in some hole if you missed the narrative recently on HDB housing.
Just as a recap, some ministers came out in the past to address about our largest home ownership scheme (you can read about some of the timeline in my article not too long ago here).
The HDB is a 99 year leasehold and they confirm that once 99 years is up, the HDB will return to the government.
Enforcement of the lease is confirm when the government will be taking back some housing whose lease will run out in 2020.
So there is a few back and forth between the establishment, and the public about whether they own their home.
Being an investor, one of my good friend thought about this interesting scenario.
It is a bit hypothetical but it is very possible.
Let’s shift the attention to the commercial property space.
There are some commercial properties that are on 999 year lease.
Having properties on such a long lease is like a few generations of human being!
Now what if the owner of these properties, say for example Keppel land or Fraser’s Centerpoint Limited sell this property into their REIT and attach only a 99 year lease.
This is not very surprising. Here are two examples:
Keppel Land Sale of Ocean Financial Center to Keppel REIT
In 2011, Keppel Land decide to sell Ocean Financial Center to Keppel REIT, then known as K-REIT for $1.57 billion.
When they sold Ocean Financial Center, Keppel Land has a 999 year lease on the property, with 850 years left.
However, they decide to sell to Keppel REIT as a 99 year leasehold.
Frasers Centrepoint Limited’s sale of Alexander Technopark to Frasers Commercial Trust
Back in 2009, Frasers Centrepoint Limited bought over the management of troubled commercial REIT Allco REIT.
As part of fixing Allco REIT, they decide to issue convertible perpetual preference shares and buy over Alexandra Technopark, a B1 Industrial Building for $342 mil.
The REIT purchased the building as a 99 year leasehold.
If we observe Frasers Centerpoint Limited’s 2016 annual report, we would notice that FCL held Alexandra Technopark as a freehold.
Leasing to a Master Tenant for 10 years
Suppose we center the discussion on Alexandra Technopark.
Frasers Commercial REIT could lease the properties to a Master Tenant for 10 years.
This master lessor will have to market the property, fill it up with tenants, do the maintenance, and earn the spread between.
One possible example is listed company LHN (who does ply in the industrial spaces by providing space optimization and leasing solutions)
Now what if a tenant comes along and decides to lease this space for 5 years from a master tenant such as LHN.
Now the question is: Who owns the property???