Size matters because it focuses on economies of scale. This is particularly the case where the property management is centralised. Whether a REIT is internally managed or externally managed, all property portfolios require a property manager. Internally managed Link REIT disburses property management fees, and AIR will also need a property manager. A disadvantage of a small REIT like AIR is its lack of economies of scale, which may affect its net property income (NPI) margin.
Be that as it may, instinctively, externally managed REITs appear to have a disadvantage versus internally managed REITs. But do they? It really depends on geography, portfolio, efficiencies and the property manager.
Comparing margins
Let us take the NPI margin and the distributable income margin of the largest REITs in Asia, CICT and Link REIT, for the past five years (they have different financial year-ends) and their latest first half.
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CICT was formed through the merger of CapitaLand Mall Trust and CapitaLand Commercial Trust in 2020, which is a suitable starting point. Based on their latest half-year results, the two REITs have nearly identical NPI margins at 73%. However, CICT’s distributable income (DI) margin is higher, albeit modestly. Note, however, that CICT usually withholds some income available for distribution for working capital purposes so that it could have distributed more. On the face of it, Link REIT distributed 100% of its income available for distribution in FY2024, FY2025 and 1HFY2026.
The trend based on five-year records shows that CICT’s margins have been rising, whereas Link REIT’s have been falling. This may be due to the latter’s overseas exposure. It acquired The Cabot in London in 2020, expanded into Australia in 2022, and completed the acquisitions of Swing By @ Thomson Plaza and Jurong Point in 2023. As a result, property management fees would inevitably have risen.
Notably, CICT’s acquisition of two office buildings in Sydney from a related company in December 2021 led to a decline in margins in 2022. Additionally, Commerzbank, an anchor tenant at Gallileo, Frankfurt, did not renew its contract. However, these margins have rebounded following the 2024 focus on Singapore, when it acquired a 50% stake in ION Orchard, and further gains are possible this year following the acquisition of CapitaSpring. As a bookend, more than 90% of Gallileo has a long-term lease with the European Central Bank starting in 2HFY2025. In 1HFY2025, CICT’s DI margins were above 50%.
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“We did an analysis on Link REIT vs CICT’s overall costs and it’s approximately the same,” notes Derek Tan, head of REITs and real estate at DBS Group Research.
Joachim Kehr, Asia-Pacific head at CenterSquare Investment Management, concurs with Tan but notes that it is more of a case-by-case study. “The first argument around management fees and the fee structure of externally managed REITs is often poor because oftentimes, when you look at internally managed REITs, and you look at the compensation of management teams of internally managed REITs, they get paid a lot of money. And if you break down the expenses of the fee structure for an externally managed REIT versus the compensation structure for an internally managed REIT, they’re really not that different. And oftentimes, it’s the internally managed REIT that has the higher cost base,” Kerr discovers.
During the interest rate upcycle from 2022 to 2024, inflationary pressures led to wage increases. However, the fixed fees of externally managed REITs remained unchanged. Instead, performance fees for many Singapore REITs (S-REITs), which were based on distribution per unit (DPU) growth, did not materialise. The likes of CapitaLand Ascendas REIT (CLAR), Mapletree Pan Asia Commercial Trust and Mapletree Logistics Trust, to name a few, reported either lower y-o-y DPUs or DPUs failed to clear hurdles.
CICT — with a market capitalisation of $17.7 billion — is the largest Asian REIT. Link REIT remains the leader in assets under management, at HK$222.9 billion ( $37 billion), compared with CICT’s $27 billion. However, as Link REIT is trading at a significant discount to its net asset value of HK$61.19, its market capitalisation is approximately $14.8 billion.
Link REIT is trading at a DPU yield of 7.3% as of Dec 18, based on its 1HFY2026 distributions per unit (Link REIT has a March year-end) of HK$12.688 (down 5.6% y-o-y) compared to CICT’s DPU yield of 4.84% based on its first-half DPU of 5.62 cents (+3.5% y-o-y). Although Link REIT is internally managed, its performance has lagged CICT’s due to differences in the performance of their respective portfolios.
In a Nov 24 update following Link REIT’s 1HFY2026 results, Bloomberg Intelligence notes that Link REIT’s net income is under pressure due to lower retail rents in Hong Kong and its decision to charge lower rentals to maintain occupancy.
“In Hong Kong, where the majority of the portfolio is based, rental reversions dropped to negative 6.4% y-o-y following prolonged pressure on our retail tenants due to rising costs, weak consumer sentiment, and increasing competition in the market. Performance has been particularly challenged for general retail, supermarkets and Chinese restaurants,” Link REIT said in its 1HFY2026 results statement on Nov 20.
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“I do believe that a bigger driver to performance is DPU growth and the ability to showcase to investors how sustainable returns can be,” DBS’s Tan says.
Geography, network effect
Geographical focus affects margins: physical diversification reduces them, as evidenced by these two large REITs. This indicates that property management and its associated costs are key determinants of REITs’ portfolio performance.
Internally managed REITs may not have this advantage, as they are standalone, except for Digital Realty, Equinix and NTT Data, which are global data centre owners and operators.
Large groups could have boots on the ground in various geographies, such as GLP and ESR. They are geographically diversified but logistics-focused. This may mitigate costs by leveraging the sponsor’s presence and footprint for efficiencies. Prologis, an internally managed REIT, has a global presence.
If geographical diversification increases costs, are there ways to mitigate them? Consider Keppel DC REIT; it employs several strategies. Its primary strategy is for its sponsor, which also develops and operates data centres, to actively manage co-location assets. Hence, the REIT and its sponsor are responsible for the management of their Singapore and Dublin data centres. In contrast, the tenant is responsible for managing the European and UK data centres. These data centre leases are on either a triple-net or double-net basis.
CapitaLand Investment and the larger CapitaLand Group have a presence in 45 countries, but a deep presence in Asia, in particular Singapore and China. This allows CapitaLand’s commercial management arm to access potential tenants outside Singapore and introduce new retail concepts, as it has done. Oriental Kopi and the Chinese brands are examples of this network effect.
Don’t blame value destruction on the economy
What hasn’t endeared investors to externally managed REITs is the stubbornness of some managers in maintaining their management fees despite poor performance. As a case in point, during Manulife US REIT’s EGM on Dec 16, when asked if the manager should reduce its fees due to the poor performance of the REIT, the CFO of MUST’s manager, Mushtaque Ali, said that the managers are doing “a lot of services behind the scenes” and there will be no concessions on the fees.
Interestingly, MUST is a US-based REIT (and one of three) that decided to list in Singapore because of the external manager model. Following the IPO, MUST’s manager went on a spending spree. After the Covid-19 pandemic hit, work-from-home led to a decline in rents and valuations in the US office market. We all know what follows a spending spree: belt tightening.
In contrast, CLAR acquired a portfolio of campus office/business parks but weathered the downdraft without a crisis, unlike US-based S-REITs. CLAR divested business park property in Portland this year at a 45% premium to its last valuation. This is in stark contrast to the 8% and 25% haircuts taken by MUST for Plaza and Peachtree, respectively. CLAR’s manager attributes its performance to maintaining a portfolio aligned with tenants’ needs through sound asset and property management. This reflects the different abilities of REIT sponsors.
Kehr argues that internally managed REITs are more proactive and active in managing their real estate. “If you look at the externally managed REIT markets like Singapore and Japan, managers also actively manage their real estate,” he acknowledges.
Although it is not fair to blame the economy for poor portfolio management, as in MUST’s case, an essential arbiter of performance is likely to come down to macroeconomic trends, challenges and the portfolio’s ability to withstand pressures. Clearly, the current weakness in both China and Hong Kong commercial real estate (CRE) has impacted Link REIT. It is assumed that CRE challenges are cyclical rather than structural. As such, the property cycle should trough and recover at some point.
Becoming more like a NAREIT
On Dec 16, CICT announced that it is part of a consortium that submitted the highest bid of $1.5 billion (which translates to $1,179 psf per plot ratio) for the tender of a mixed-use commercial and residential site at Hougang Central. The site is a 99-year leasehold residential and commercial plot spanning a total area of 504,820 sq ft. A sub-trust of CICT, Commercial Trust, will hold the commercial part of the mixed development.
This is not CICT’s first foray into a greenfield development. The site in Jurong East — now Westgate — was also a greenfield development undertaken by CapitaLand Mall Trust, CapitaLand Malls (then listed) and CapitaLand. However, this is a truly mixed site with commercial and residential uses.
A REIT may undertake property development activities up to 10% of its deposited property. A REIT may exceed the 10% development limit under certain conditions. At any rate, with an asset size of approximately $27 billion, CICT has development headroom. In addition, CICT’s portfolio valuation is likely to remain resilient in FY2025, with the Singapore portfolio providing the bulwark and a recovery in Gallileo’s valuation. This may cause aggregate leverage to ease marginally from the 39.2% reported in 3Q2025.
S-REITs have redeveloped their existing sites, but only CICT has taken stakes in entirely new sites. In the US, internally managed NAREITs (North American REITs) often undertake development, which is one reason they were able to weather the interest rate cycle in better shape than US-based S-REITs from a valuation perspective. Their accounting practices also differ.
CICT considers itself the proxy for Singapore’s commercial real estate sector. Following a decline in the value of its Australian investments, CICT swiftly pivoted to Singapore through the acquisitions of ION Orchard and CapitaSpring. CapitaSpring and this new greenfield development, should its consortium be awarded the site.
“You can sit down with the REIT and the sponsor of the REIT. You can have a conversation around the fee structure, whether fees are based on AUM [assets under management] or DPU growth. We’ve definitely seen improvement in the fee structure for externally managed REITs,” says Kehr.
The comparisons between CICT and Link REIT are based on their similar size, the preponderance of retail, and their differing structures. Unfortunately, Link REIT is in the midst of the most challenging part of the property cycle. Before Covid-19, Link REIT was trading in the 3% to 4% range, which may have prompted the unitholders of Sabana REIT, now AIR, to embark on an internalisation process.
Unfortunately, because of the time and expense of the internalisation process, the property cycle indicates that it is not the structure that yields a compressed trading yield, but instead the portfolio and the ability of the manager and property manager.
“My opinion is that there are advantages and disadvantages to both models. Being internally managed doesn’t guarantee you savings. The key is the manager’s ability to benefit unitholders. I think there are a few good examples of that — where investors accord premium valuations to the REIT,” DBS’s Tan says. He points to CICT, of course, along with Frasers Centrepoint Trust and ParkwayLife REIT, “to name a few”.
To market observers, the debate is not about replacing one model with the other, “but about evolving governance standards to ensure S-REITs remain competitive, resilient and attractive to global investors”, a market observer points out. “Internalisation may gain traction, but sponsor-led external management will likely remain a defining feature of Singapore’s REIT landscape in the near term.”
