The case for managing Reits internally

Singapore

AFTER a long wait, the Monetary Authority of Singapore (MAS) has finally come out with proposed enhancements to the Reit regime in Singapore. The enhancements, while encouraging greater accountability and transparency of Reits, are unlikely to materially change the Reit landscape here.

The only way for S-Reits to gain full investor confidence is if they are internally managed with the full weight and accountability of an experienced team. Major US Reits such as Kimco, Taubman and Vornado are helmed by their founders with significant stakes in the Reits. Investors in such Reits are able to benefit from an experienced and dedicated executive team whose interests are fully aligned with theirs. These Reits have greater leeway in terms of leverage, geographical diversification and their ability to develop properties than S-Reits, but the reason for this is in large part due to the quality of their internal management and the trust it engenders among investors. Despite higher operational risks relative to S-Reits, most major US Reits trade at low yields of around 2.5 per cent to 4 per cent, versus more than 5 per cent for S-Reits.