Which REITs May Be Privatized After Paragon REIT

Daniel Lee

6 days ago3 min read

Updated: 5 days ago

On 11 February 2025, Paragon REIT received a privatization offer at a 10.1% premium to the counter’s last transacted price by Times Properties, a wholly owned subsidiary of Cuscaden Peak Investments.

The reason for the privatization offers revolves around the “low” liquidity and free float as well as their intention to conduct major asset enhancement initiatives (AEI), which the offeror believes is “more suitably carried out in a private setting”.

Based on the offeror’s rationale, given that Paragon accounts for 72% of the REIT’s portfolio, any AEI will result in massive disruption in the operating performances, DPU and hence resulting in undesirable drawdowns which limits the manager’s ability to maintain the mall’s competitiveness in the long run.

In this article, we’ll examine the 38 REITs listed in Singapore and identify the REITs who exhibit similar liquidity constraints and portfolio concentration risk so that investors can have a better sense of the likelihood of future privatization.

Defining Daily Liquidity & Portfolio Concentration

To facilitate the analysis, we’ll be quantifying market liquidity based on the following formula:

This provides us with a sense of the average market depth while accounting for the impact of market capitalization by examining it in a ratio rather than from a nominal figure. (i.e. a $10billion market capitalization REIT will have a higher trading volume (in $) as compared to a $1billion market capitalization REIT).

As to portfolio concentration, we’ll be examining the number of properties within the REIT’s portfolio and assigning the following category based on the following:

High: > 70% of the portfolio is concentrated in less than 2 properties
Medium: 50% to 70% of the portfolio is concentrated in less than 2 properties
Low: < 50% of the portfolio is concentrated in less than 2 properties

Findings

By applying the formula and ranking the REITs in descending order, the findings are as follows:

All the data necessary for computation are extracted from TradingView

Considering the Paragon REIT privatization offer, I believe the following REITs have a higher probability of receiving a privatization offer in the future, as they display characteristics very similar to Paragon REIT:

BHG Retail REIT
Sasseur REIT
Starhill Global REIT
Lendlease Global Commercial REIT
OUE REIT

Conclusion

Identifying potential REIT privatization opportunities requires careful evaluation of liquidity constraints and portfolio concentration. As seen in the case of Paragon REIT, low market liquidity and a highly concentrated portfolio increase the likelihood of a privatization offer, especially when significant asset enhancement initiatives are planned.

From my analysis, REITs such as BHG Retail REIT, Sasseur REIT, Starhill Global REIT, Lendlease Global Commercial REIT, and OUE REIT exhibit similar characteristics, making them candidates for potential privatization in the future.

While privatization offers may present a premium to investors, they also limit long-term participation in potential upside gains. As such, investors should weigh the risks and opportunities when considering REITs with these traits and stay informed on market trends that could influence future privatization moves.

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