It is important that when we review a listed REIT’s annual report, we can see constant and consistent proactiveness on some of the following challenges:

1. Ensuring total cost-to-revenue remained stable. This reflects the REIT’s manager ability to effectively manage operating costs. There is a constant need by the REIT’s manager to rationalise operating costs, e.g. by reducing energy cost by replacing aged equipments, and etc.
2. Improving rental income. Realistically, costs (e.g. due to inflation, etc.) will always increase, so the ability to stabilize or reduce total cost-to-revenue by improving rental incomes is critical. There is a constant need to further enhance the assets and boost revenue contribution by maximizing the usage of spaces and open spaces. For example, in shopping mall REITS, the ability to draw revenue or publicity generating events and short term licensed use by retailers is important.
3. Not to be over-dependent on single tenant. The tenant base should be well diversified say in a shopping mall reit -by good trade mix which should able to largely reflect the needs of the domestic catchment that the malls trade in.
4. The ability to attract higher yielding trades/tenants to improve portfolio income. The REIT manager places greater priority on tenant retention since tenant acquisition may result in higher opportunity costs such as vacancy and leasing commission. This provides the REIT with stability of income over the long term. Other than a proactive tenant retention programme, the Manager is also able to be dedicated to building strong tenant-landlord relationships to foster greater understanding of the tenants’ needs and enhance business growth.
5. Management’s attitude toward capital management:

• It is important that there should be prudence exercised in the REIT’s capital management. We should see managers able to maintain sensible borrowing guidelines to reduce the risk from factors beyond the Manager’s control such as interest rate trends.
• Normally, we should able to see a strengthening in the net asset value (NAV) of the REIT on a year-to-year basis, a planned reduced gearing ratio (maybe 25%) and a good interest coverage (perhaps about 4 – 5 times).
• As part of the Manager’s strategy to mitigate fluctuations in interest rates, the REIT’s debt should be fixed at various length of maturities and at a certain weighted average interest rate inclusive of margin.
• There should also be a constant awareness of the interest rate trend. This could present opportunities for the REIT to gear up for other yield accretive acquisitions, as well as to lower borrowing costs where appropriate.

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