Issues with tenants ‘unavoidable’ but unlikely to concern Reits: DBS

Issues with tenants are “unavoidable” but are unlikely to concern real estate investment trusts (Reits) as most of them are diversified and have measures in place, said DBS Group amid news of some Reits being briefly impacted after CWT’s parent defaulted on a loan agreement.

“It’s unavoidable, things happen to tenants,” said DBS head of capital markets Eng-Kwok Seat Moey on Thursday, when asked how corporate tenants in trouble could drag down Reits in Singapore’s office and logistics space.

However, the Reits generally have a diversified tenant base, Ms Eng-Kwok said. For example, CWT contributes “a small part” of rental revenue for the Reits which count the logistics player as a tenant.

Furthermore, she noted that Reits have measures in place, such as rental deposits for at least six months that they can draw on. Hence, “we’re not concerned”.

This comes as DBS looks to bring more Reits to Singapore, particularly US-centric ones, as the bank observes steady demand from local investors in US real estate. Clarity on US tax regulations at the end of last year has also made it easier for US Reits to come to local shores.

Ms Eng-Kwok said the bank is working on “quite a number” of potential listings involving office and hospitality spaces.

In terms of offering size, she said: “For each Reit when they want to come to the market, the first consideration is the size in terms of what the market can take and liquidity… We’re looking at a ballpark figure of US$400 million to US$500 million.”

Meanwhile, the local Reit market will continue to see more consolidation happen, “a good thing” because Reits need scale to acquire assets and grow, said Ms Eng-Kwok.

Earlier in April, two OUE units had announced a merger to create a S$6.8 billion diversified Reit, months after ESR-Reit and Viva Industrial Trust’s S$3 billion merger.

“We’ve come to the stage where to have opportunities to grow is to scale up and be big enough so that you can acquire, because it takes a lot of resources and expertise to go offshore,” she said. Merging with another Reit is the “fastest way” to do so.

Reits which don’t grow could be penalised and become potential targets, she added. “When you’re penalised, your stock doesn’t trade well, trades below net asset value and is not liquid. (This makes you) a potential candidate for consolidation.”

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