The recent announcements of Frasers Hospitality Trust (FHT) (SGX:ACV) and Paragon Reit (SGX:SK6U) opting to go private have ignited debate about the long-term sustainability of Singapore-listed REITs, especially those focused on traditional property sectors.

📉 FHT Goes Private Amid Growth Constraints

On May 14, FHT’s manager unveiled a proposed privatisation offer of S$0.71 per stapled security, representing a 27.8% total return since its 2014 IPO and 1.11 times its adjusted NAV. This follows a strategic review launched in April that concluded FHT would struggle to grow its distributions per stapled security (DPS) and net asset value (NAV).

Key challenges cited include:

• High interest rates post-Covid, increasing debt costs

• Strong Singapore dollar, weighing on NAV and DPS (as 59% of FHT’s S$2B portfolio is overseas)

• The cyclical nature of the hospitality sector, which requires ongoing capital expenditure

Since its listing, FHT and peers delivered only 0.79% annualised total return. Hospitality trusts have traded at an average of 0.73 times NAV in recent years, far below the privatisation offer.

🏬 Paragon Reit: Delisting to Fund Major AEI

Paragon Reit, which received unitholder approval for delisting earlier this year, cited a need for asset enhancement initiatives (AEI) at its flagship mall, Paragon. The property, accounting for 72% of the trust’s portfolio, is facing rising competition and weakening demand for luxury retail.

The AEI is expected to cost up to 21% of Paragon’s appraised value. The privatisation offer of S$0.98 per unit reflects 1.07 times NAV.

📊 Broader Sector Pressures

The weak performance isn’t limited to hospitality REITs:

• Commercial S-REITs returned an average of 3.61% p.a.

• Industrial/logistics S-REITs: 4.92% p.a.

• Specialised REITs (e.g., Keppel DC, Parkway Life): a robust 10.07% p.a.

S-REITs across the board face margin compression due to elevated interest rates and foreign exchange pressures. Meanwhile, new REIT listings are shifting focus to growth sectors like data centres, healthcare, and student housing.

🧩 Consolidation & Strategy Shifts

The wave of consolidation in recent years — including CapitaLand Mall Trust’s merger with CapitaLand Commercial Trust, and Mapletree Commercial Trust’s union with Mapletree North Asia Commercial Trust — reflects the changing strategies of sponsor groups seeking scale and stronger market positioning.

However, these deals haven’t always been smooth. The MCT-MNACT merger faced significant minority shareholder pushback, ultimately requiring S$2.2B in cash from Mapletree Investments to proceed.

💬 Investor Sentiment: Weak, but Opportunistic

While privatisation activity signals underlying sector weakness, it could boost investor sentiment, provided the exit terms are attractive.

FHT’s current offer of S$0.71 compares favourably with its 2022 failed privatisation bid at S$0.70, which offered only 1.07x NAV at the time. Today, the offer is more compelling — especially given Frasers Property’s (SGX:TQ5) own shares trade at 65.5% below NAV, suggesting limited capacity to bid higher.

📌 Conclusion: A New Era for S-REITs?

As more S-REITs weigh the merits of staying public, those facing persistent valuation discounts may follow FHT and Paragon into privatisation — particularly if they operate in volatile or mature sectors.

Investors should stay attuned to:

• Sector rotation into REITs with data/healthcare exposure

• Rising AEI needs in retail and hospitality

• M&A potential and NAV premiums offered in privatisations

In a “higher-for-longer” interest rate world, Singapore’s REIT market may be entering a phase of renewal and realignment, with privatisation increasingly a tool to unlock value.

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