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Merging of same-stable Reits is the way to go
AT LAST count, the Singapore bourse has a diversified Reit Listings across hotels, health, office, residential and retail sectors of more than 30 counters with the smaller companies capitalised at less than S$1 billion each - and this does not even include the multitude of business trusts present.
There is a real need for market consolidation. Small, locally-oriented Reits attract little or no institutional investor interest, being little researched by big foreign trading houses. They have liquidity problems and garner high running costs as they don't have economies of scale. Their borrowing costs are always a few points higher than their bigger cousins'.
That the two OUE-stable Reits have merged cannot be better news ("Two OUE Reits join consolidation trend with proposed merger", BT, April 9). On the heels of the merger of ESR and Viva Industrial Trust - in which shareholders benefited from richer valuations and increased institutional interest, with higher trading volumes - investors should look forward to a more salubriously amalgamated Reits environment.
Conglomerates like marquee brands Fraser, Keppel, Capital and Mapletree have at least three listed Reits each under their umbrella, with running personnel, office and operational expenses triplicated. Sure, some of the individual units are already enormous by local standards, but stand them next to the international behemoths, they pale in comparison.
Where unity is strength and merging fellow stable Reits will result in entities bigger than S$10 billion, borrowing costs - a main factor for profitability in this sector of the bourse - can be lowered substantially. There will be more income stability, and greater value for shareholders will emerge.
That seems like a winning proposition.
Yik Keng Yeong