Singapore Reit sector will do better with internally managed Reits

WE REFER to the article ‘Reit unitholders should not assume that an internal manager will automatically leave them better off’(BT, Jul 16) and would like to point to the substantial merits of internal managers for Reits. The facts are, as elaborated in an Ernst & Young paper, the debate on the merits of internal versus external management structure has already long been resolved in favour of the internal model. This is why in older and larger Reit markets such as the United States and Australia, the overwhelming majority of Reits there are internally managed.

Academic research has shown that internally managed Reits perform better. As early as in 1995, research showed that US internally managed Reits outperformed externally managed Reits by more than 7 per cent from 1985 to 1992. A study comparing the risk-adjusted performance of Australian Reits found that internally managed Reits also outperformed. Internally managed NetLink Trust and Croesus Retail Trust have also substantially outperformed their Singapore externally managed peers.

Beside Reits sponsored by GLCs such as Mapletree, CapitaLand and Keppel which have shown superior corporate governance and strong commitment to investors’protection, Reits investors have generally regarded the track records of the other sponsors as mixed and far from satisfactory.