Internalisation of Reits: How to avoid the nuclear option

TRADITIONALLY, Singapore-listed real estate investment trusts (S-Reits) have been managed by external managers owned by sponsors. This model is favoured by sponsors because it allows them to recycle capital, retain control over properties and earn recurring income through management fees.

Unitholders accept this model as sponsors provide a pipeline of properties for the Reit to acquire and help secure better financing terms. Over the past 20 years, many S-Reits have grown significantly due to the efforts of their sponsors.

However, the external manager model is not without its flaws.