REIT ASIAPAC MAGAZINE REITASIAPAC AUGUST 2020 ISSUE | Page 14

REIT ASIAPAC market for more capital unless there is an underlying issue with the REIT.” One investor in Australia said, “Not in the countries we focus on over the next one year.” Shinkawa with Sumitomo Mitsui DS Asset Management Singapore said, “Yes, especially for retail REITS with downside risk for valuation.” Other respondents were less positive. According to an investor from Hong Kong, “Nothing is impossible. You already have it in SG (Singapore) with Eagle Hospitality.” Eagle Hospitality Trust has about 18 hospitality assets in the U.S., and the trust has come under regulator’s scrutiny after its non-executive chairman Howard Wu and deputy chairman Taylor Woods were found to be engaged in “prejudicial” deals that are “not on usual commercial terms”. Junnosuke Shinkawa, a senior fund manager with Sumitomo Mitsui DS Asset Management Singapore, said that: “A few from the hotel sector may potentially breach LTV (loan to value) or covenants.” One Singapore-based respondent said retail REITs are at risk because “we can’t see the end of the pandemic.” James Maydew, head of global listed real estate at AMP Capital, believes that while this could occur, banks would likely cooperate. “Yes, in some sectors, but banks will work with them to not force deeply discounted equity. This is not 2008/09,” he said. 7. SECONDARY OFFERINGS MAY BE NECESSARY BUT SHOULD BE AVOIDED This is supported by two more respondents from Singapore, with one saying that “If they are at risk of breaching covenants then yes. As an investor, I will attempt to avoid those types of REITs.” An investor from Hong Kong commented, “They have done so in Australia, at the cost of large dilution effects. Not favourable.” A separate respondent from Australia said, “this should only be done where necessary,” adding that he was disappointed by some companies that had opted for an “opportunistic repair of [their] balance sheets that aren’t under pressure.” While some are required to do so, “those deferring while markets improve should be commended,” he said. Another Australian investor said, “Only if it helps enhance shareholder value and not if they can help it. That said, a number of REITs have been doing this and because the REITs are trading at significant discounts to NAV (net asset value), the take up rate has been strong.” “It’s pretty dyn relationship Rental terms a competitive m and landlords can’t drive te business or t massive issue in the longer t fund m Q Should REITs be conducting secondary offerings to improve their balance sheets? With interest rates at record lows, REITs encountering cash flow problems may turn to the debt market to raise funds. However, banks are also becoming more cautious with regards to their credit lines. Alternatively, they could raise capital via secondary stock offerings. However, this would be dilutive and could depress already weak stock prices. Based on our survey among REIT investors, many believe REITs secondary offerings may be necessary given the current challenging market conditions. 8. BALANCE OF POWER BETWEEN LANDLORDS AND TENANTS IS DYNAMIC Q How do you see the balance of power between landlords and tenants? The unprecedented lockdowns implemented across many Asia Pacific economies came with a particular point of friction, namely, lease contracts that lock tenants into long term commercial agreements regardless of whether they use the premises. This was especially true for office, retail and 14