SINGAPORE: An unorthodox sale of assets by a Singapore Reit is set to inspire more M&A among the city-state's property trusts, three-quarters of which are languishing below book value, bankers and fund managers say.
Saizen Real Estate Investment Trust agreed last month to sell its Japan portfolio to an affiliate of US private equity firm Lone Star Funds for US$370 million. In doing so, it gained a slight premium to adjusted net asset value per unit despite the property trust having traded at a discount to net asset value over the last two years.
While the cash deal, due to close early next year, comprises the bulk of its assets and will likely lead to a delisting of the trust itself, its management team has won plaudits from fund managers for listening to unitholders and maximising value.
Singapore's real estate sector is expected to soon face an oversupply in office and industrial properties as well as headwinds from likely interest rate hikes and a weak economy, making conditions ripe for Reit consolidation.
Bankers say unitholders are likely to become more vocal about boosting value through deals now that a precedent will soon be set. In particular, they add it makes sense for bigger Reits to swallow smaller Reits and achieve larger economies of scale.
"These Reits are run like piggy banks on a very thin margin, effectively. So if you can squeeze on financing costs because of scale, if you can squeeze management a little bit further, it goes a long way," said a banker familiar with situation.
Of 35 Singapore-listed Reits tracked by Thomson Reuters data, 27 are trading below book value. The FTSE ST REITs Index has fallen 12% this year in line with the wider market.
But the banker, who declined to be identified as he was not authorised to talk to the media, said cash deals like Saizen's could be far and few between as only big industrial players would have those amounts of money to splurge.
Share-swap deals would make sense for many property trusts, he added.
In a further sign of potential M&A, Cambridge Industrial Trust said last month that its manager's main owners Oxley Global and National Australia Bank had received expressions of interest for their combined 80% holding.
The trust has a market capitalisation of some US$550 million and trades at 12% discount to its book value.
Kin Chan, chief investment officer at Hong Kong-based Argyle Street Management, which owns about 9% of Saizen's units, noted that small Singapore Reits tend to trade at a discount to their net asset value.
"There are a number of sub-scale Reits in Singapore that could be interesting consolidation candidates," he said.
The smallest Singapore-listed Reits include Viva Industrial Trust, which has a market value of US$365 million after its unit price fell 7% this year, and Sabana Shariah Compliant Industrial REIT, whose units have lost 23% this year to give it a market value of US$373 million.
Viva and Sabana declined to comment for this article. - Reuters
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