SINGAPORE (Dec 9): Singapore’s real estate investment trusts (S-REITs) continue to excite market watchers, amid a flurry of mergers and acquisitions this year.

In the largest deal, CapitaLand in January announced it is forking out $6 billion to acquire Temasek Holdings' subsidiary Ascendas-Singbridge (ASB), in a move which saw the creation of the largest diversified property group in Asia with combined total assets under management (AUM) of more than $123 billion.

See: CapitaLand and Ascendas-Singbridge in $11 bil deal to create Asia’s largest diversified real estate group

Then, OUE Commercial REIT in April agreed to merge with OUE Hospitality Trust to create one of the largest diversified S-REITs with total assets of up to $6.8 billion.

See: OUE C-REIT and OUE H-Trust in merger to create diversified S-REIT with $6.8b in assets

Next, Ascott Residence Trust (ART) and Ascendas Hospitality Trust (AHT), both members of the CapitaLand Group after its acquisition of ASB, in July announced a $1.24 billion merger to create the largest hospitality trust in the Asia-Pacific region, with $7.6 billion of assets.

See: Ascott Residence Trust and Ascendas Hospitality Trust combining to form $7.6 bil behemoth

“S-REITs which are small risk being marginalised in terms of research coverage by sell-side analysts, resulting in low trading liquidity,” says UOB Kay Hian lead analyst Jonathan Koh in a Dec 4 report. “The prime motivation is to enlarge scale, increase free float and aim for index inclusion.”

And there seems to be no end in sight for the M&A activity among S-REITs.

Earlier this month, Frasers Logistics & Industrial Trust (FLT) and Frasers Commercial Trust (FCOT) proposed to merge to create an enlarged REIT with a total portfolio worth a total of $5.7 billion.

The enlarged REIT is expected to be one of the top 10 largest S-REITs by market capitalisation and will have greater index representation on the FTSE EPRA/NAREIT Index.

See: Frasers Logistics & Industrial Trust to acquire Frasers Commercial Trust for $1.54 bil in proposed merger

“Market cap and trading liquidity are important considerations when sell-side analysts decide on their universe of coverage. Priority is given to S-REITs with large market cap that are included in major indices with well recognised sponsors,” says Koh.

The way he explains it, smaller S-REITs are often overlooked by institutional funds and thinly traded.

“The on-going consolidation of smaller S-REIT to enhance scale will keep sentiment towards S-REIT buoyant and positive,” Koh says, as he keeps his “overweight” rating on the sector.

See: 3 potential S-REIT mergers to watch out for: UOB Kay Hian

“We see an environment of persistently low interest rates, which will keep interest fixated on yield plays, such as S-REITs,” he adds.