Singapore REITs: Popular but Not Without Risks
Singapore REITs (S-REITs) remain a favoured investment among local investors thanks to their steady distributions. However, cases such as Eagle Hospitality Trust (EHT) and, more recently, Manulife US REIT (MUST) have highlighted that not all trusts are created equal.
Lessons from EHT
EHT was listed on the SGX Mainboard in May 2019 at US$0.78 per unit. Less than a year later, in March 2020, trading was suspended, and distributions were deferred as the Covid-19 pandemic crushed US hospitality markets and occupancy rates. By November that year, the Monetary Authority of Singapore (MAS) ordered the removal of EHT’s manager.
Although the IPO price was pitched as a discount to its net asset value (NAV) of US$0.88, subsequent revelations suggested that the NAV was artificially engineered. As Goola Warden of The Edge Singapore noted in 2021, EHT became “one of the most obvious financially engineered REITs to be listed on SGX — but not the only one.”
The Fall of MUST
MUST’s struggles stem from falling US office valuations driven by work-from-home trends. Once trading around US$0.80 in July 2021, its units now hover at just US$0.06–0.07.
In June 2023, the REIT halted distributions after breaching loan covenants following a 14.6% year-on-year drop in portfolio value to US$1.63 billion. The breach forced a reclassification of some loans as current liabilities.
At its 1HFY2025 briefing on August 14, CFO Mushtaque Ali noted that leverage would have been closer to 50% post-repayment if not for another 9.3% valuation decline in FY2024. Nonetheless, aggregate leverage improved to 57.4% from 59.4% three months earlier, mainly due to debt reduction.
Key Lessons for Investors
1. Location Matters
Adrian Chui, CEO of ESR-REIT’s manager, stressed at The Edge Singapore’s REITs Investment Forum that asset location is critical. Properties in developed markets with strong legal frameworks and transparent regulations are safer, while those in weaker jurisdictions carry higher risks.
Even within a country, prime locations matter. In Singapore, Grade A downtown offices remain more resilient than suburban or fringe locations, which risk being “hollowed out” by hybrid work trends. Chui also advised favouring local assets to avoid foreign exchange risks.
2. Strong Sponsors Are Critical
Chui emphasised that a credible sponsor brings operational expertise, leasing networks, and on-ground knowledge, especially when expanding overseas.
Han Khim Siew, CEO of OUE REIT’s manager, agreed, noting that reliable sponsors honour their commitments. He cited OUE’s master lease agreements for Hilton Singapore Orchard and Crowne Plaza Changi Airport, where the sponsor upheld minimum rent payments totalling S$67.5 million annually during 2020–2022 despite Covid-19 disruptions. A weaker sponsor could have invoked force majeure clauses to avoid payment.
3. Due Diligence Is Non-Negotiable
Ultimately, investors must do their own homework. As Guy Cawthra, CEO of Lendlease Global Commercial REIT’s manager, put it: “If you’re dealing with a crook, he cheats you — it’s to be expected.”
Chui suggested treating red flags like “traffic lights” — if even one looks dim, investors should be wary. Han added that MAS and SGX safeguards, such as the gearing cap (raised from 40% to 50% in November 2024), provide an additional safety net, but cannot replace investor diligence.
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