Keynote Speech by David Gerald, Founder, President & CEO, SIAS at REITs Symposium 2024

Date: May 11, 2024

Ladies & Gentlemen

It gives me great pleasure to deliver this keynote address for such an important event as this REITs symposium, one of ShareInvestor’s most highly anticipated ticketed annual events.

Since 2022, REITs have broadly underperformed, mainly because interest rates were raised by major central banks to combat high inflation brought on by the war in Ukraine and supply chain constraints resulting from Covid-19.

REITs, being entities with large borrowings and therefore high interest costs, have seen their earnings capped over the past two years which has then limited their ability to make distributions.

However, this is expected to change in 2024, with most observers forecasting rates to be cut this year as inflation appears to be coming under control. The problem of course, is the timing of when this will happen – at the start of the year, most experts had forecast rates being lowered in June but as it stands now, the first rate cut is only expected in September.

If and when rates are actually lowered, REITs should be able to report better profits and distributions. Already we are seeing signs of a recovery – SGX Research in January reported that the iEdge S-REIT Index rose 0.3% whilst delivering a 6.6% total return in 2023. Hence the importance of this symposium for investors to gain insights into what the future holds for REITs.

A widespread belief is that REITs are most suited to investors who wish to enjoy a stable stream of income, or those seeking yields that are superior to that offered by banks, bonds or Government T-bills.

Some even believe that REITs are mainly for older investors who wish to supplement their retirement incomes with regular cash inflows.

In SIAS’s view, REITs have a place in every investor’s portfolio, regardless of what their investment objectives might be. This is because of the stable distributions that REITs are obliged to pay in order to qualify for tax transparency, their potential for capital appreciation, the ease of understanding how they operate and a strong regulatory framework.

REITs were first conceived in the United States and gained popularity when the US Congress enacted the Real Estate Investment Trust Act in 1960 which exempted REITs from taxation at the corporate level.

The aim was to provide everyday American investors the opportunity to invest in income-producing real estate—much like mutual funds which were created to give Americans from all income levels access to capital markets.

Once US investors recognised the attractions of REITs, interest grew exponentially and today, the market capitalisation of US REITs has grown from US$10b in 1990 to an estimated US$1.4 trillion in 2023.

In Singapore, the first attempt to launch a REIT was made by CapitaLand in November 2001 when it offered a REIT called SingMall Property Trust at a 5.75% yield at a time when the 10-year Singapore Government Bond yield was 2.89% and fixed deposit rates were under 2%.

Unfortunately, the offer was not well received and had to be withdrawn, possibly because of a belief that the assets were overpriced and also because the outlook for the retail and property markets back then was not good.

Another probable factor was unfamiliarity with what was then a new asset class, at least as far as the Singapore market was concerned.

The same REIT was floated again in July 2002, this time as CapitaMall Trust, at a higher 7.06% yield. This time it was very successful, with a five times subscription rate.

Encouraged by this, others such as Ascendas, Suntec and CapitaCommercial Trust soon followed as the market gradually began to understand the benefits that REITs offered while overcoming scepticism about this new instrument.

Since then, the REIT sector has enjoyed strong growth. As at the end of 2023 there were 42 REITs trading on the Singapore Exchange worth a combined S$100 billion, making it the largest REIT market in Asia outside of Japan. Today you can invest in REITs that own properties in a variety of sectors such as retail malls, hospitals, clinics, data centres, office buildings, hotels and warehouses.

According to REITAS, the market capitalisation of Singapore-listed REITs or S-REITs as they are popularly known, has grown at a compound annual growth rate of 6% over the last 10 years.

One indication of the growing importance of REITs in the local market is that there are now seven REITs which are part of the main market benchmark, the Straits Times Index which comprises a total of 30 components. In other words, almost one quarter of the STI is now made up of S-REITs.

The latest STI entrant was Frasers Centrepoint Trust or FCT, which was added in March with a market capitalisation of S$3.9b. FCT is one of three pure-play Singapore property S-REITs, alongside Sabana Industrial REIT and Far East Hospitality Trust.

Over 90% of S-REITs and property trusts (by both number and market capitalization) own properties outside Singapore across Asia Pacific, South Asia, Europe and USA. There are 17 S-REITs whose entire real estate portfolios comprise overseas properties.

In Singapore, a commonly-held belief is that you can’t go wrong when you invest in property. Maybe so, but the capital outlays to buy a house, apartment or shophouse are very large relative to one’s income and selling when the time comes could take several months.

In contrast, REITs give investors exposure to the property market for a small capital outlay, plus investors get to receive annual distributions and possibly enjoy capital appreciation. On top of this, unlike physical property, they can liquidate their investments any time on the SGX at readily available prices.

Furthermore, S-REITs are regulated by the Monetary Authority of Singapore under the Collective Investment Schemes Regime of the Securities and Futures Act and are subject to SGX’s Listing Rules as well. This means that there is robust regulatory oversight of the sector.

Last but by no means least, REITs are relatively simple to understand – they are essentially a bunch of properties managed by teams of professionals with the aim of collecting rental income for distribution to their unitholders.

In some cases, how well the business is doing can easily be discerned by simply visiting the premises owned by the S-REIT to gauge how well-occupied they are. In any event, information regarding S-REITs is readily accessible by the public so performing the necessary due diligence before investing is very possible.

Before I end this address, I’d like to add a few words about recent developments relating to corporate governance and shareholder activism surrounding S-REITs.

Until very recently, all S-REITs were externally managed, which means that the manager, who is essentially the brains behind the REIT and the entity which sets the REIT’s strategic direction, is a separate company that is paid a fee for managing the REIT. In many cases, the manager is a wholly-owned subsidiary of the REIT’s sponsor.

This differs from the model employed in the US and Australia, where internal management is more common. In this model, the REIT manager is usually owned by the REIT and its unitholders.

Some of you may be aware of developments at Sabana REIT, where an activist investor, Quarz Capital, successfully lobbied minority investors last August to remove the external manager and replace it with an internal one, arguing that this would reduce conflicts of interest, result in immediate cost savings and lead to a better alignment of interests between the manager and unitholders.

Whilst this development has been hailed as a victory for shareholder activism, it is important to note that whether one model is “better’’ than the other is not easy to determine conclusively.

The external model has served the S-REIT sector well over the past 20 years so it should not be assumed that changing to an internal manager will automatically result in better performance.

In this connection, it’s worth noting that at an NUS forum in 2021 (

it was pointed out that since S-REITs are launched as Collective Investment Schemes like unit trusts in Singapore, the external model was at the time seen as offering the right fit as the success of the S-REIT would then depend on the expertise and experience of the management team.

Furthermore, experts at that forum also pointed out that the sponsors of many S-REITs have stakes in the S-REITs as part of their business models, which means that interests between unitholders and sponsors who own the managers are probably already well-aligned in the first place.

Possibly the best advice for retail investors is to understand that each S-REIT has its own unique features and characteristics that might render one type of management model better suited than the other.

There are pros and cons associated with external and internal management and it would be useful for all S-REIT unitholders to study what these are in the context of their own investments.

If called upon to decide, investors should also consider their own personal circumstances after familiarising themselves with all aspects of whatever proposals are being put forth.

In conclusion, I would like to urge investors to take an active interest in their investments and to play a greater role in how their investments are managed and governed.

Individually you may think your voice is too small to be heard, but collectively, you can be a considerable force. I hope you will wield that power responsibly and I wish you all the best in your investing journey.