Then, OUE Commercial REIT in April agreed to merge with OUE Hospitality Trust to create one of the largest diversified S-REITs with total assets of up to $6.8 billion.
Next, Ascott Residence Trust (ART) and Ascendas Hospitality Trust (AHT), both members of the CapitaLand Group after its acquisition of ASB, in July announced a $1.24 billion merger to create the largest hospitality trust in the Asia-Pacific region, with $7.6 billion of assets.
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“S-REITs which are small risk being marginalised in terms of research coverage by sell-side analysts, resulting in low trading liquidity,” says UOB Kay Hian lead analyst Jonathan Koh in a Dec 4 report. “The prime motivation is to enlarge scale, increase free float and aim for index inclusion.”
And there seems to be no end in sight for the M&A activity among S-REITs.
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Earlier this month, Frasers Logistics & Industrial Trust (FLT) and Frasers Commercial Trust (FCOT) proposed to merge to create an enlarged REIT with a total portfolio worth a total of $5.7 billion.
The enlarged REIT is expected to be one of the top 10 largest S-REITs by market capitalisation and will have greater index representation on the FTSE EPRA/NAREIT Index.
“Market cap and trading liquidity are important considerations when sell-side analysts decide on their universe of coverage. Priority is given to S-REITs with large market cap that are included in major indices with well recognised sponsors,” says Koh.
The way he explains it, smaller S-REITs are often overlooked by institutional funds and thinly traded.
“The on-going consolidation of smaller S-REIT to enhance scale will keep sentiment towards S-REIT buoyant and positive,” Koh says, as he keeps his “overweight” rating on the sector.
“We see an environment of persistently low interest rates, which will keep interest fixated on yield plays, such as S-REITs,” he adds.
