Could an airport REIT finance Singapore’s massive infrastructure ambitions?

Monetising the first three terminals could command market capitalisation near $10b.
An airport real estate investment trust (REIT) secured on the rental income of the first three Changi terminals could command market capitalisation near $10b, according to a report by Maybank Kim Eng (Maybank KE).
According to Maybank KE analysts Chua Hak Bin and Lee Ju Ye, monetising the first three terminals which already have stable income and cash flows could raise a significant amount of money for the new terminal. “This will reduce the amount required for borrowings for Terminal 5 which is expected to start operations in 2030,” they highlighted.
Changi Airport’s operating profit was reported to be around $953m, with a total revenue of $2.6b for FY2018. About 50% of the airport’s revenue is said to come from airport concessions and rental income. And whilst there is no detailed breakdown, rental income from the first three terminals could be as much as $500m, the analysts noted.

Additionally, Chua and Lee highlighted that an airport REIT could help revive what has been a moribund period for the Singapore Exchange (SGX). “A Bloomberg report highlighted the sorry state, with the number of delisting exceeding listings in recent years,” they explained. “Initial public offering (IPO) proceeds raised last year only amounted to US$512m, falling 85% from the previous year. Singapore ranked 7th in Asia excluding Japan in terms of funds raised, far behind Hong Kong’s $35b and even Vietnam’s $2.6b.”
As of end-2018, there were 741 firms listed on SGX, down from a peak of 782 in 2010.
An airport REIT could therefore help increase the representation and weight of “pure play” Singapore companies on the Strait Times Index (STI), they added, citing that such a REIT may help satisfy yield-hungry institutional and retail investors. “An airport REIT will help broaden and complement the current diversity of REIT and business trusts offered on the Singapore exchange. This could help catalyze Singapore’s efforts to be an infrastructure financing hub,” Chua and Lee added.

Additionally, they argued that a listed airport REIT can also be used to guarantee or partly guarantee the loans for Terminal 5, reducing the burden on the government for a guarantee or perhaps even the need for the president’s concurrence. The funds may also reduce the pressure for new taxes (including the GST) or even higher airport charges to fund the airport expansion.

In finance minister Heng Swee Keat’s 2019 Budget Speech, he highlighted that in an effort to lower costs, the government, with the president’s concurrence, would provide a guarantee for Changi East borrowings to tap on the strength of the government’s balance sheet to back the investment into Terminal 5.

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