Do Reit managers have as much stake as unitholders?

ALTHOUGH many of the most highly geared S-Reits perked up last Friday after new rules were introduced to give them more debt headroom and the option to defer 2020 dividends by a whole year, some market watchers chose to fade the rally.

One bemused analyst summed up the situation like this: "It's like you know the passing mark for your exam is 50/100 but because you are doing poorly they lower it to 40/100. And then your parents buy you a Playstation."

Indeed, raising the leverage limit for Reits from 45 per cent to 50 per cent has removed a key overhang for smaller Reits that have a debt-to-asset ratio of close to 40 per cent. Gearing concerns resulted in a major derating of S-Reits during the 2008 liquidity crunch, and some undertook dilutive rights issues which resulted in DPU (distribution per unit) declines.