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While issues with tenants are unavoidable, DBS Group believes that such issues are unlikely to affect real estate investment trusts (Reits) since the majority of them are diversified with measures in place, reported the Business Times.
The statement comes amid news of some Reits being affected briefly after the parent of CWT defaulted on a loan agreement.
“It’s unavoidable, things happen to tenants,” said Eng-Kwok Seat Moey, head of capital markets at DBS, when asked how troubled corporate tenants could drag down Reits in Singapore’s logistics and office space.
She noted, however, that Reits usually have a diversified tenant base. CWT, for instance, contributes a small portion of rental revenue for the Reits that count the logistics firm as a tenant.
Moreover, Reits have measures in place, like rental deposits for at least six months which they can draw on. Thus, they are not concerned.
In fact, the bank is looking to bring more Reits to Singapore, especially US-centric ones, as DBS noted steady demand from local investors in US real estate.
Eng-Kwok disclosed that the bank is working on several potential listings involving hospitality and office space.
She favours the expectation that more consolidations will occur in the local Reit market, given that Reits need scale to grow and acquire assets.
“We’ve come to the stage where to have opportunities to grow is to scale up and be big enough so that you can acquire, because it takes a lot of resources and expertise to go offshore.”
Reits that don’t grow could face penalties and become possible targets, she said.
“When you’re penalised, your stock doesn’t trade well, trades below net asset value and is not liquid. (This makes you) a potential candidate for consolidation.”
Romesh Navaratnarajah, Senior Editor at PropertyGuru, edited this story. To contact him about this or other stories, email romesh@propertyguru.com.sg
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