Reit unitholders should not assume that an internal manager will automatically leave them better off

IN THEORY, internalising the function of a real estate investment trust’s (Reit’s) manager looks appealing. There are cost savings in fees paid to an external manager, there is a closer alignment of goals (on paper, at least) between the manager and unitholders in terms of maximising distributions per unit, and having an internal manager would appear to minimise conflicts of interest that could arise if the existing external manager is a subsidiary of the sponsor.

Furthermore, the majority of Reits listed in the US – the world’s largest Reit market – are internally managed, so why shouldn’t Singapore-listed Reits, or S-Reits, follow suit?

No doubt these are compelling arguments. Certainly, they were sufficient for unitholders of Sabana Industrial Reit to accept when they voted at an extraordinary general meeting (EGM) on Aug 7 last year to internalise the Reit’s manager after lobbying by activist unitholder Quarz Capital.