In July, NTT DC REIT successfully IPO-ed with a price of US$1 ($1.28). Although the IPO yield was attractive at 7.5%, unit prices have since slipped below US$1. Nonetheless, the REIT IPO was generally warmly received and a stabilisation process is underway.
Ronald Tan, senior vice-president, equity global markets, global sales & origination, SGX, outlines three “thematics” that investors are showing a preference for, for a successful REIT listing.
“The market would like to see stronger, reputable sponsors,” he says. In 2021, SGX had two REIT IPOs with Daiwa House Industry and Digital Realty as sponsors of Daiwa House Logistics Trust and Digital Core REIT, respectively.
Digital Realty is the world’s largest data centre company, although it is structured as a REIT. In the US, REITs can undertake development and operations. Hence, Digital Realty manages and operates the data centres in Digital Core REIT. Daiwa House Industry Co, the sponsor of Daiwa House Logistics Trust, is a well-known brand in Japan and Asia Pacific.
See also: Manulife US REIT one sale away from meeting divestment goal, but what’s next?
Secondly, local investors are open to learning about diversified portfolios. Diversified portfolios are viewed as lower risk, providing improved returns. With a diversified portfolio, REITs won’t be subject to concentration risk. S-REITs, which have been listed with one or two major assets, have since diversified both by asset class and geography.
Thirdly, the sponsor should have a pipeline for its REIT and be able to support its REIT financially.
“If you see the commonality between the last three IPOs, sponsor credibility, the pipeline of assets and a diversified exposure across the portfolio are three thematics of indicating that investors are showing a preference for these IPOs,” Tan says.
See also: Strategic reviews and potential privatisations in SG, UK REIT sector
Regulation and education
Since the IPO of Manulife US REIT (MUST) in 2016, followed swiftly by Keppel Pacific Oak US REIT (KORE) and Prime US REIT, local investors have soured on US REITs during the Covid-19 pandemic, from which these REITs have not fully recovered.
There were three main reasons for this. Firstly, S-REITs with US office assets have to bear the cost of tenant incentives, including fit-outs. During the quantitative easing, low interest rate part of the rate cycle, this was not an issue, but became untenable during the Federal Reserve’s rate hike cycle.
The risk to costs and capital expenditure associated with tenant incentives, although mentioned in prospectuses, was not sufficiently highlighted to retail investors.
Higher interest rates also caused discount rates and capitalisation rates to rise, depressing capital values. In addition, with interest expense among the largest expenses for the US S-REITs, distributable income declined. MUST and KORE have suspended distributions per unit (DPU), while Prime US REIT’s distributions have been cut. KORE may restore DPU in 2026.
Finally, it has been challenging to get US office workers back to the office, which has caused tenants to scale back on their space commitments.
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Among the sponsors for the US office REITs, local investors were familiar with Manulife because it has insurance operations in Singapore, and it signed a distribution partnership with DBS Group Holdings.
Subsequently, two trusts with US hospitality assets listed on the SGX in quick succession, ARA US Hospitality Trust and Eagle Hospitality Trust. Both blamed the pandemic for their poor performances. However, the reality was more disturbing for Eagle Hospitality Trust.
According to a Monetary Authority of Singapore (MAS) announcement on May 17, 2024, Salvatore Takoushian, former CEO of Eagle Hospitality Trust’s managers was charged with failing to disclose information to the SGX pertaining to the failure by the master lessees (which were the sponsor) to fund the shortfall in security deposits at various points in time between June 7, 2019, and Feb 14, 2020. The failure to provide the balance of security deposits led to a default under the master lease agreements and, in turn, a default on a US$341 million loan made to Eagle Hospitality Trust.
Asked if more information in prospectuses about sponsors could have helped to highlight the risk of investing in REITs and trusts with unknown sponsors such as Eagle Hospitality Trust, Tan says: “Regulations can ensure that you have proper, timely, transparent disclosure for investors to make a risk assessment. Can it help investors make a safer decision? I don’t think that is the role of regulation. It can only allow that disclosure is adequate enough.”
“If I’m an investor, all these disclosures will help me make a risk-based adjustment decision whether the returns make sense. I think that is what we set out to do,” he continues.
The role of the regulator is not to advise, but to ensure companies make adequate disclosures, Tan emphasises.
Meanwhile, SGX Academy offers various programmes, including many free ones, to help investors make informed choices.
“With SGX Academy, we have a lot of different programmes. Investors have to decide, based on their risk profile, on what’s been disclosed and the returns, whether it still makes sense for them to invest,” Tan says. “The activity that we are doing, in terms of whether it’s more analyst coverage, and the different schemes that are in place, all these are helpful to educate and provide some guidance and education to investors.”
The S-REITs have to comply with the Securities and Futures Act (SFA) and the Code on Collective Investment Schemes (CIS). The SFA requires REIT managers to hold a Capital Markets Service (CMS) licence. The MAS has also issued additional guidelines, including a ceiling on aggregate leverage and interest coverage ratio floors. The SGX Listing Manual also applies to S-REITs.
“Not only do S-REITs comply with our listing rules and the SFA, they also have additional regulations beyond a listed company, for example, the CIS code, not forgetting one very important component, the licensing of the REIT manager. That is a very detailed licensing process with MAS under the CMS licensing. To me, there is a lot of due care and regulatory processes that REITs and REIT managers need to satisfy before they even get an approval to come to the market,” Tan elaborates.
Internalisation
An important aspect of the success of S-REITs is the regulatory framework and the external manager model, where strong sponsors maintain significant stakes in their REITs and provide both financial support and their best assets. S-REITs are effectively passive vehicles with the manager providing management of the assets. This is a different model from the US and Australia, where managers are internalised, and REITs can own both operational and non-operational assets.
In August 2023, however, an activist hedge fund proposed a resolution to remove the manager of Sabana Industrial REIT and proposed an internal manager with representatives from the hedge fund and a committee set up by the hedge fund to serve as directors of the internal manager.
“Activist shareholders are good. They bring value to the market, and engaging with sponsors and the ecosystem was important. It is important that all parties and stakeholders have an avenue to express their objectives, including the sponsors, activists and minority unitholders. The biggest challenge is how do we find a landing that is equitable to all parties? I think that’s where, right now, the difficulty is,” Tan says. “We’re still trying to find what the common ground is, and that’s why I think it’s taking a protracted time to reach an opinion,” he continues.
Some minority unitholders have lobbied for the REIT to sell its assets, dissolve, and return capital to unitholders.
“The cost is escalating,” Tan observes. As of the end of March, Sabana REIT’s manager announced that $12.22 million had been spent on the internalisation process, comprising $2.45 million in expenses incurred by the manager and $9.77 million in expenses incurred by the Trustee. “Approximately 10% of distributable income was retained for prudent capital management in view of costs incurred and to be incurred in connection with the internalisation,” Sabana REIT’s manager says in its 2Q2025 statement.
Internalised REITs, once viewed as a glamorous, more enlightened REIT model for the local market, are likely to take a back seat, market watchers reckon. When asked by REIT sponsors whether they are concerned about a hostile move like the hedge fund at Sabana REIT, they are circumspect.
“If anybody wants to be hostile on the vehicle, I don’t think it’s so easy. As the REIT gets bigger, the ability for people to be hostile is challenging. There are also options such as a share buyback to increase our stake,” said Lee Chee Koon, group CEO, CapitaLand Investment (CLI) in an interview with The Edge Singapore in May.
“Skill is important, making sure that the REIT is well-managed, with a good portfolio. Essentially, every CEO that we put in place must be very careful about reconstituting the portfolio, whether overseas or at home. They have to think through what they want to do to raise valuation,” Lee says. He says CLI will continue to hold around 20% of its REITs.
CLI is the sponsor of Singapore’s largest REIT, CapitaLand Integrated Commercial Trust, with a market capitalisation of more than $16 billion, assets exceeding $26 billion, and a historic DPU yield of less than 5%, given the rally in its unit price. As at July 17, CapitaLand Ascendas REIT has a market cap of $12.7 billion, CapitaLand Ascott Trust is valued at $3.4 billion, CapitaLand China Trust at $1.33 billion and CapitaLand India Trust at $1.54 billion.
However, the next REIT IPO is unlikely to be a CLI-sponsored REIT. Instead, Centurion Corp has announced the impending IPO of its accommodation REIT. Elsewhere, Mapletree Investments has a portfolio of purpose-built student accommodation (PBSA) that could have been placed in a REIT. More immediately, market watchers reckon that IOI Properties could be the next sponsor of an office REIT, with South Beach, an integrated development, and IOI Central Boulevard Towers as seed assets. Elsewhere, Hongkong Land has articulated a desire to REIT some of its assets.
