COMMERCIAL PROPERTY | Staff Reporter, Singapore

Will smaller REITs emerge on the losing end of a consolidation spree in Singapore?

They might even be excluded completely, analysts say.

The need to save regulatory and compliance costs for the city-state’s real estate investment trusts (REITs) have brought about talks of a consolidation spree.

The discussion was also most recently ignited by Philip Levinson, CEO of Cambridge Industrial Trust, saying that the wave of consolidation for Singapore REITs is about to begin.

According to analysts from KGI Fraser, smaller REITs are currently facing a higher cost of equity compared to their larger peers, increasing the challenge for equity fundraising and raises the hurdle rate for yield-accretive acquisition.

“The smaller industrial REITs typically trade at a discount to book, while the larger peers trade near or above book,” KGI Fraser said.

KGI Fraser added that due to this, consolidation is a key positive for smaller REITs.

“Hence, if the smaller REITs were to consolidate and form a larger REIT, they could gain access to a wider reach of investors and improve access to equity fundraising. The larger REIT would also have a more diversified property and tenant profile, potentially improving the credit rating and hence lower the cost of borrowings,” KGI Fraser said.

However, these speculations are based on possibilities, KGI Fraser points out, as another angle is that larger REITs may not even have plans to buy smaller REITs out in the first place.

“However, we understand from Mapletree Logistics Trust that it has no plans to do this, while Mapletree Industrial Trust did not comment on consolidation plans. We also spoke to Ascendas REIT last November on the potential of such acquisitions, and noted its considerations such as the quality and fit of the assets, as discount to book is not the only factor,” KGI Fraser said.

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