Size matters because it focuses on economies of scale. This is particularly the case where the property management is centralised. Whether a REIT is internally managed or externally managed, all property portfolios require a property manager. Internally managed Link REIT disburses property management fees, and AIR will also need a property manager. A disadvantage of a small REIT like AIR is its lack of economies of scale, which may affect its net property income (NPI) margin.
The debate over an internally managed REIT model versus an externally managed REIT model may have been put to rest following the performance of CapitaLand Integrated Commercial Trust (CICT) and Link REIT. On the other hand, Singapore now has its first internally managed REIT: Alpha Integrated REIT (AIR). Link REIT is also internally managed, while CICT is part of the larger CapitaLand Group and is externally managed.
These REITs are not directly comparable. For one, CICT is primarily based in Singapore and continues to expand its presence there. Link REIT’s portfolio is mainly in Hong Kong and China, with 12 properties (11.8% of assets) in Singapore, Australia and the UK. Hence, it is a lot more diversified. AIR is a minnow compared with CICT and Link REIT, making it an unusual candidate for internalisation. But here we are.
