SINGAPORE (Jan 23): Adrian Chui, CEO of ESR-REIT’s manager may have started a trend. In 2018, ESR-REIT merged with Viva Industrial Trust in a share and cash offer. VIT unitholders were paid 96 cents per unit of which 90% was with ESR-REIT units, and 10% in cash. In 2019, two mergers were completed, between OUE Commercial REIT and OUE Hospitality Trust, and Ascott Residence Trust and Ascendas Hospitality Trust.
“We saw the onset of this trend three years ago. I guess REITs with sponsors are in a better position to grow bigger. Independent REITs have to find a way to survive,” Chui says during a recent results briefing.
In the initial decade of S-REIT existence, they competed with each other to buy properties. After the global financial crisis, REITs had to compete against each other and with private funds as well. REITs’ gearing (loan-to-value) is capped at 45% but private funds could borrow up to 60% of property value. “In a low interest rate environment [post GFC], the chase for yield started with sovereign wealth funds, family offices and pension funds all looking for higher returns,” Chui points out. The field is a lot more crowded, and these private funds have a lot more flexibility.
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