REITs face large-scale restructuring as growth outlook dims

More firms will imitate Saizen REIT.

A wave of mergers, acquisitions and big asset sales are on the horizon for SGX-listed REITs as profit prospects dwindle.

A report by DBS highlighted that REIT managers might be pushed to merge or consolidate their REITs to drive growth, particularly because there are fewer opportunities to acquire properties in Singapore.

“Through larger REITs, the redevelopment of existing properties can be accelerated without negatively affecting DPU to unitholders during the redevelopment phase,” DBS said.

“Furthermore, a larger market cap and increased share liquidity could result in yield compression, making it easier for REITs to make DPU accretive transactions,” added the report.

Other REITs might also be tempted to sell assets as capital markets are currently not conducive for equity raisings.

For instance, Saizen REIT, which was trading at >20% discount to book, has recently accepted an offer for the acquisition of all its real estate assets in Japan, at a 3.4% premium to the appraised value of the properties.

“Smaller cap, undervalued REITS trading at below book may attract situational interests,” DBS said.