Singapore’s other pure-play Reits trading below book could do with strategic reviews too

THE decision by the manager of Manulife US Reit to conduct a strategic review – just six years into its listing on the Singapore Exchange (SGX) – is a bold move.

On one hand, some in the market might take it as an admission of failure.

That the value of a real estate investment trust (Reit) – backed by a strong global sponsor, no less – should have collapsed to the extent it did suggests the Reit was not built on a sturdy foundation in the first place.

On the other hand, the manager of the US-focused office Reit should be lauded for its willingness to admit it needs a makeover – and to attempt a pivot before it is too late.

In fact, other Singapore-listed Reits (S-Reits) could do with strategic reviews too.

A look at the 10 S-Reits trading at the steepest discounts to their net asset values (NAVs) per share reveals that, like Manulife US Reit, the majority are focused on a single asset class within a single geographical location.

At the bottom of the table are shopping mall landlords Dasin Retail Trust and Lippo Malls Indonesia Retail Trust (LMIRT), whose assets are, respectively, in China and Indonesia.

Dasin Retail Trust is trading at a whopping 80 per cent discount to NAV, while LMIRT is trading at a 67 per cent discount.

Others on the list include US-focused hotel operator ARA US Hospitality Trust , China-focused industrial Reit EC World Reit , and Manulife US Reit’s US office Reit peer Prime US Reit .

Among the S-Reits that are trading at the biggest discounts to book value, only two have portfolios comprising various asset classes in more than one location.

These are diversified Reits OUE Commercial Reit , which has properties in Singapore and China, and Cromwell European Reit , whose assets are spread across several countries in Europe.

It would appear, therefore, that the market views diversification with some favour.

This makes sense, as portfolios with mixed asset classes and geographies have the ability to provide greater balance and stability.

A diversified portfolio would mean unitholders miss out on outperformance when a particular asset class or country is on an upcycle, as pure-play Reits would be the greatest beneficiaries.

But in periods of extreme and widespread volatility – such as the market currently facing – there is significantly less uncertainty.

This is particularly true of pure-play Reits with assets that are based primarily overseas.

As one Reit analyst shared with The Business Times: “Pure-play Reits with a single asset class in a single geography may be seen as riskier. But if they are Singapore-centred, would you say the same thing?”

For Reit managers, a relook at a Reit’s longer-term strategies is not a bad thing.

“I think Reit managers should periodically undertake a strategic review of their portfolio – whether internally or with an external adviser – as the market conditions and operating environment constantly evolve and change with the passage of time,” said Morningstar analyst Xavier Lee.

“For Reit managers to maintain the performance of their Reits, they will need to constantly review their portfolio, divest non-core assets and recycle the capital into better growth opportunities,” he added.

Not all Reits need to go exactly the way Manulife US Reit has, though.

Veteran Reit investor Gabriel Yap suggested that the worst-performing Reits should do “an in-depth self-examination” of themselves and their directions. “There is no need for (formal) strategic reviews as that means paying bankers using distribution income meant for shareholders.”

Certainly, any reasonably informed Reit investor would be able to tell that some S-Reits have unsustainable strategies or business models.