SINGAPORE (July 3): While real estate investment trusts have been able to raise equity to acquire properties, REIT Association of Singapore (REITAS) secretary Jerry Koh laments that market liquidity is sorely lacking.
“Structurally, our Singapore market lacks liquidity. This affects valuation and it’s a negative cycle. One of the suggestions I had was to encourage private funds or funds dedicated to investing in Singapore securities to provide liquidity for local stocks,” Koh says in a media briefing on July 2.
“We have lots of measures encouraging listings, education, etc. But the real problem is liquidity. We need investors to stay loyal to local stocks in the medium to long term,” adds Koh who is also deputy managing director of Allen and Gledhill.
For instance, Koh points out that Malaysia has the Employees' Provident Fund (EPF), and Australia has its superannuation funds.
“We have a pipeline of REITs,” Koh reveals. “But because of our structural issues, it is not going to be easy to list IPOs. In the REIT space each IPO is done with a lot of effort, which is why we are suggesting that to rejuvenate the capital market we should have these funds set up.”
Market observers have indicated that part of the problem stems from the way investment bankers market REIT IPOs.
The Singapore Exchange saw two REIT IPOs in May with the listing of ARA US Hospitality Trust and Eagle Hospitality Trust. But REIT managers point out that cornerstones were high net worth individuals – and that the same HNWIs subscribed to both IPOs.
Although the market has evolved and matured, the problem remains, says Jonathan Quek, a member of REITAS and managing director, head of Asia Pacific Real Estate & Lodging, and head of Singapore Investment Banking at Citigroup Global Markets Singapore.
“When you bring subscale IPOs to list, institutional investors will stay away [unless] we need to give them a carrot in the form of a high yield,” Quek says. In other words: REIT IPOs could be overpriced.
However, Quek points out that Manulife US REIT, which was listed in 2016, has been able to diversify from HNWI investors to institutional investors, grow its DPU and expand its AUM.
When the market relies on large foreign sources of capital, a bifurcation occurs. The large liquid REITs with quality sponsors are priced differently to smaller REITs, Quek acknowledges.
Low Chee Wah, vice-president of REITAS, and senior executive vice president and head of Retail & Commercial at Frasers Property Singapore, says “Large institutional investors require liquidity and hence, it is more difficult for smaller REITS to attract institutional funds.”
The article was upated at 9.54am to replace a quote by Mr Low
