1. Property Asset Management
Lesson 2

2. Property Asset Management

3. Purpose of Property
Property is being held (in any type of property right) for one of two purposes:
as an investment asset
as an operational asset
Property held as an investment asset, like any other investment asset, is expected to earn a rate of return on capital employed for the holder and appreciate in capital value
Property held as an operational asset serves to support the activities of the business occupying the property. This type of property is sometimes referred to as `corporate property'

4. Building Life Cycle

5. Market Cycle

6. What is Property Asset Management?
Asset management enables an organization to realize value from assets in the achievement of its organizational objectives
Asset management supports the realization of value while balancing financial, environmental and social costs, risk, quality of service and performance related to assets
Property asset management is the process of guiding the planning, acquisition, operation & maintenance and disposal of assets to make the most of their service delivery potential including managing the related risks and costs over their entire life, i.e. a continuous process covering the whole life of the asset
Key Activities include:
Planning
Acquisition
Operation & Maintenance Management
Disposal

7. Strategic Objectives VS Property Objectives
Occupancy cost minimisation
Cost effectiveness is maximised
Flexibility
Facilities and workspaces that can adapt to changes in use
Promote HR objectives
The workspace has an impact on employees satisfaction and productivity
Promote Marketing message
Buildings and the internal environment can act as a Marketing tool for an organisation and create brand identity
Promote Sales & the selling process
Location e.g. McDonalds
Facilitate and control production, operations and service delivery
Ensure facilities are in locations that enable links between customers and suppliers
Facilitate managerial process and knowledge work
The workspace should be designed to enable and enhance knowledge transfer

8. Functions of Real Estate Management

9. Functions of Real Estate Management
Real estate management functions are interrelated and inter-depended which is hierarchical in nature too
As the general management hierarchy of a business firm like top management, middle management and lower level management, overall real estate management functions also can be ordered as higher level, middle level and lower level according to the property related managerial functions
The functional distinction between asset management and property management ensures the operational implementation of the various duties on the one hand and the monitoring and controlling implementation (strategic) for safeguarding the owners’ interests on the other hand

10. Functions of Real Estate Management
Managerial Levels VS Real Estate Managers

11. Functions of Real Estate Management
Portfolio Management
Properties combined
Linked owner / stakeholder goals with organisational goals
Asset Management
Acquisition, redevelopment or disposition
Achieve owner / stakeholder goals
Property Management
Day-to-day, one at a time

12. Functions of Real Estate Management
Core Tasks in Asset Management
Yield / risk management and yield responsibility
Operational purchasing and sales as well as transaction management in line with the portfolio strategy
Ongoing portfolio evaluation in the form of market and location analyses
Designing and safeguarding documentation, reporting and process management
Selection and management of the property manager as well as external service providers
Co-ordination/monitoring of tenancy and property accounting as well as the dunning function and service charge statements
Risk management at the property and process level
Development and management of the letting strategy
Acquisition of new tenants and sales-oriented tenant contact management for each specific mandate
Optimisation and value enhancement of the individual property (in line with portfolio strategy)
Modernisation and revitalisation measures with major volume (Capex)

13. Asset Management Plan

14. Analytical Framework For Asset Management Strategy Formulation14 14

16. Asset Management Lifecycle

17. 4 Keys Stages of Asset Management Lifecycle
1) Planning
Establishes and verifies asset requirements based on evaluation of the existing assets and their potential to meet service delivery needs
Identification of management strategies is required in order to include and analyze the need for an asset
If the company uses effectively planning in all asset management cycle stages, it will help in:
assessing the practical sufficiency of existing assets
ensuring resources are available when necessary
recognizing excess or under-performing assets
estimating options for asset provision and funding asset acquisition
ensuring assets are maintained and liable

18. 4 Keys Stages of Asset Management Lifecycle
2) Acquisition
The acquisition planning includes activities involved in purchasing an asset with the aim of ensuring cost effective acquisition and covers activities such as designing and procuring an asset
Appropriate application of these activities guarantees that the asset is fit for use
Initially, organization should decide whether the asset will be perpetually bought or built before establish a budgeting for asset acquisition along with a time frame for its acquisition and a purchasing requirement
A project team should run the process to make sure all acquisition process activities will be completed to meet service delivery and other organization objectives

19. PURCHASE OF 9 GUL LANE, SINGAPORE 629408 BY TAI SIN ELECTRIC LIMITED
“Tai Sin Electric Limited has on 4 September 2018 entered into a Sale and Purchase Agreement to purchase the property known as 9 Gul Lane, Singapore for S$7,000,000 from Aplast System Co. Pte Ltd.
Tenure for the Property is Leasehold 26 years commencing 1 January 2011, with an unexpired lease term of less than 19 years.
The purchase consideration payable by Tai Sin to the Vendor is S$7,000,000 in aggregate exclusive of goods and services tax.
Tai Sin intends to use the Property to alleviate space constraints at the cable and wire factory, leading to higher productivity, increased production capacity and growth...”

20. “AEW boosts Singapore office exposure”
- The Business Times
21 July 2018
US-based global institutional property investment manager is buyer of 55 Market Street; analysts say it may be planning strata sales, refurbishment
Last week, Frasers Commercial Trust (FCOT) announced the S$216.8 million sale of the 16-storey building but did not name the buyer
This is the second Singapore office asset AEW clinched in less than two weeks
In late June, it entered into a deal to buy Twenty Anson from CapitaLand Commercial Trust (CCT) for S$516 million. CCT in its announcement of the sale also did not name the buyer
Market watchers say the acquisition prices seem to be on the high side, translating to low entry yields

21. 4 Keys Stages of Asset Management Lifecycle
3) Operation and Maintenance
The operation and maintenance stage indicates the application and management of an asset, including maintenance, with the aim of delivering services
The plan of asset management should have a high focus on asset maintenance issues
Throughout this time, the asset should be focus to appropriate maintenance, monitoring and potential improvement to overpass any adjustment in operational requirement

22. Categories of Maintenance

23. Categories of Maintenance
Planned Maintenance
Systematic inspection of buildings, equipment and all assets to maximise economic life
Anticipate failure and establish procedures to prevent
Comprise scheduled or condition based maintenance
Proactive

24. Maintenance Performance
Maintenance Standard
Technical characteristic of building
Intended use of buildings
Financial factors
Organisational factors
External factors
Performance Standard
Required response time
Down time of essential facilities
Required quality of repair
Required cost of repair
Proportion of planned to unplanned maintenance

25. Asset Performance Evaluation
Operating Budget – Variance Review
Evaluate performance against benchmarks
Revenues
Expenses
Make recommendations in major revenue and cost drivers

26. Asset Performance Evaluation
Balance Sheet Review
Changes / size of
Cash balances
Account receivables
Account payable
Reserve balances
Ratios
Working capital
Current ratio
Owner’s equity
Debt to equity

27. Asset Performance Evaluation
Portfolio Review
Ways to analyse e.g. By type, location, size, etc.
Monitor for compliance
Analyse trends
Link mission, obligations and opportunities

28. Asset Performance Evaluation
Property Manager Review
Evaluate based on annual management plan and budget
Meet formally, monthly or quarterly
Specific areas:
Financial
Compliance
Physical

29. 4 Keys Stages of Asset Management Lifecycle
4) Disposal
When an asset reaches its end of a useful life, it can be treated as an underperforming asset
Disposal should be treated in the perspective of the effects of the decision on service delivery and any departmental responsibilities
Recognizing asset’s value, future value and costs are essential, therefore developing a strategic asset management plan is highly preferred and required
Such a strategic asset management plan would enable an effective and well organized asset and deliver services

30. Monetization Strategies

31. Secured Borrowings / Securitization Transactions
The simplest form of monetization is merely to borrow money against the asset
These transactions can take the form of a simple commercial mortgage, from a bank, or a more complicated transaction, such as Commercial Mortgage Backed Securities
Can be on individual properties or as a pool
Increasingly done in local currencies to take advantage of lower borrowing rates in international markets.

32. Secured Borrowings / Securitization Transactions
Pros
Simple, well understood
Relatively short time to complete transactions
Relatively low transaction costs (e.g. no transfer taxes)
Limited corporate-level tax consequences
Cons
Limitation on borrowing amounts (e.g percent loan-to-value)
Possible limitation on interest deductibility for tax purposes
Increases company's leverage for debt covenant purposes
Company still exposed to real estate risks

33. Individual or Portfolio Sale-Leaseback Transactions
Property is sold to a third party and leased back to the company
Can be on individual properties or under a master lease for multiple properties
Can have potentially significant tax costs to sellers and may discourage potential, and otherwise qualified, candidates from engaging in these transactions
Financial accounting for these transactions can be complex, especially in the United States, which has specialized rules in this area

34. Individual or Portfolio Sale-Leaseback Transactions
Pros
Moderate transaction costs potentially including transfer taxes
Increasing number of buyers led to improved pricing
Possible tax deduction for rental payments
Many buyers exist and they can close transaction in reasonably short periods
Full realization of monetization value
Company no longer exposed to real estate risks
Cons
Tax consequences can be significant
Operating charge to P&L where there previously was no rent expense or need to pay market-based rents
Buyer generally looking for longer lease durations
Accounting can be complex unless normal leaseback is attained

35. “MLT enters into sale-and-leaseback agreement for 5 local logistics properties worth $778.3 mil”
- The Edge 05 May 2018
Mapletree Logistics Trust (MLT) is acquiring five logistics properties in Singapore for $778.3 million in a sale-and-leaseback deal.
The vendor is CWT, a Hong Kong-listed subsidiary of HNA
Upon completion of the deal, the properties will be 100% leased back to CWT for five to 10 years.
The five properties are all located in the western region of Singapore and comprise three chemical & ambient warehouses, one ambient warehouse and one temperature-controlled & food warehouse.
The five properties have a combined total gross floor area (GFA) of 3.21 million sf.

36. REIT Conversions
The term REIT conversion is used broadly to describe a very wide range of transactions in which the original entity transforms-either partially or entirely-into an REIT, including spin-off transactions
Such a transaction may be considered either “traditional,” if the property involved is similar to those normally seen in an REIT (e.g., retail or office buildings), or "non-traditional," if the property is more unique to the REIT market (e.g., billboard, timber, wires/infrastructure, etc.)
In a simple REIT conversion, the majority of the company's assets and operations qualify under the REIT tax requirements and are either owned directly by the REIT or its subsidiaries
While their potential for tax savings clearly benefits an organization, the decision to undergo a REIT conversion or spin-off is often made for additional reasons

37. REIT Conversions
There are other, potential benefits, including the perceived impact on financing costs, monetization of non-core assets, and the company's share price
Over the last few years, investors have been searching for yield and have been willing to pay more for higher dividend stocks, including REITs
Investor interest may see a slight decline in the face of potential interest rate hikes and other factors impacting the market, but all indications are that these investment types are here to stay
Many common REIT structures provide a company with a tax advantaged currency to acquire properties in fragmented industries

38. REIT Conversions
Finally, some companies are taking advantage of these transactions to reorganize themselves and recapitalize their balance sheets
A REIT conversion is certainly not without challenges. A company may need to substantially change the way it does business with its customers to bring its business in line with the technical REIT requirements
In other cases, a company may need to sell or spin-off portions of its business so that the remainder can elect REIT status. There will likely be many challenges in both completing the REIT conversion transaction itself and in maintaining REIT status post-conversion
There are also REIT-specific tax, operational, accounting, and financial and investor reporting issues that will need to be addressed considered from a costs/ benefit standpoint

39. REIT Conversions
Pros
Significant reduction in ongoing, combined taxes at entity level due to REIT status
Cons
Complex transaction or reorganization may be required, generating significant transaction costs, need for management attention, and time to consummate
Operating as a REIT may require the reorganization of or modification to business operations, contracts, and processes
Company still exposed to real estate risks

40. Spin-off
This transaction involves separating out the real estate from an existing company and moving it into a new company
In some cases, the existing company continues to own the operating business and leases the real property from the new entity at current market rates
Depending on tax law, it may be difficult to achieve a tax-free spin-off of real estate
Assessing the amount of the tax due on getting the real estate out of a corporation will be critical to the economic analysis of possible alternatives

41. Spin-off Pros Reduction in combined taxes for recurring operations
Potential to structure as a tax free spin-off (may now be limited, see above), but requires an additional, unrelated business that meets size limitations
Cons
Tax “toll charge” can be significant if
Costs were recently reduced with the reduction of the corporate federal tax rate in the U.S. from 35% to 21%.
Complex, significant transaction costs and time to consummate
Tax-free spin-off requirements can add complexity to the transaction from a business, tax, and regulatory filing perspective
May need to make a significant distribution to purge pre-REIT tax earnings and profits

42. Tutorial

43. Case Study Redevelopment of Funan DigitaLife Mall

44. “S$560m redevelopment of Funan mall to begin in Q3”
The Business Times
22 July 2016

45. “Funan mall trail-blazes into omni-channel retailing”
Asset Redevelopment
“Funan mall trail-blazes into omni-channel retailing”
EdgeProp
04 June 2018

46. Redevelopment of Funan DigitaLife Mall
Funan DigitaLife Mall has utilised of its allowable Gross Plot Ratio of 7.0. As such, the mall currently has an untapped Gross Floor Area (GFA) of about 388,000 square feet. The redevelopment of Funan DigitaLife Mall will maximise the full potential of its site and excellent location.
Funan will close on 1 July 2016 for redevelopment works spanning three years. About 388,000 square feet (sq ft) will be added to the mall’s current Gross Floor Area of 482,000 sq ft, creating a sizeable integrated development measuring 870,000 sq ft – about the size of ION Orchard.

47. Redevelopment of Funan DigitaLife Mall
The proposed development and related costs including financing, technology and professional fees amounted to approximately S$560.0 million and will span over three years. It is targeted for completion in the fourth quarter of 2019.
After observing the revitalisation of Singapore’s Civic District in recent years, we saw the possibilities of incorporating more social and community elements into Funan DigitaLife Mall that will maximise the potential of its prime location in a vibrant lifestyle district.

48. Redevelopment of Funan DigitaLife Mall
In its place, we are creating Funan, an integrated development comprising six-storey retail mall, two office towers and one block of serviced residences.
Building on the legacy of its predecessor, the reimagined Funan will incorporate the tech experience throughout the entire integrated development, such as multi-dimensional cinema screens, the Central Business District’s first drive-through click-and-collect service and a smart car parking system.
By catering to new lifestyle needs, Funan is geared to serve this and future generations, just like how the old Funan has served the generations before.