As with a virtuous circle, being in an index could lead to lower cost of capital, of both equity and debt. If the enlarged ESR-REIT trades well, distribution yields would contract. Lower yields would enable the merged REIT to acquire yield-accretive assets more easily.
Sabana Shariah Compliant REIT has outlined five reasons why a merger with ESR-REIT would be beneficial for its unitholders. And memories from 2017 could still be fresh in the minds of most unitholders. In the past two years, a clear trend has emerged among REITs — the quest for size. A small REIT — and Sabana REIT is the smallest industrial REIT by assets under management (AUM) — has many challenges.
As Sabana REIT has found, turning master-leased properties into multi-tenanted properties has been a particular problem. A larger merged ESR-REIT would catapult Sabana REIT from the smallest REIT into the fifth largest by AUM. With size comes liquidity. A larger REIT would inevitably have more unitholders and a higher free float market capitalisation. This in turn would get the enlarged ESR-REIT into important indices, which in turn would lead to greater recognition.
