It is cause for concern that the stock prices of real estate investment trusts (Reits) fall steeply whenever there is an announcement that a Reit is acquiring assets from its parent sponsor company.
For instance, the stock price of Ascendas Reit recently fell 7 cents following an announcement from Ascendas Group that it has more assets to sell to it.
Many people invest in Reits for their dividends and steady prices. These are mainly pensioners and small shareholders.
Selling assets to its Reit allows a parent sponsor to raise cash, but this does not benefit the small Reit shareholders. The Reit has to raise cash to pay for this acquisition. It has to sell more shares and also borrow more. The selling of shares dilutes existing shareholders' rights.
The management also collects more fees from such acquisitions.
The Monetary Authority of Singapore should look into this to safeguard the interests of small shareholders.
Management fees should be tied to increases in dividends per unit rather than asset acquisition, which requires share dilution.
Regulators need to take strong measures to prevent small shareholders from suffering steep losses because of the practices of the management.
Ng Geok Khim