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
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