REITs have over the last decade become an investment option that delivers tax-efficient, stable and regular returns for investors. Singapore is now one of the largest REIT markets in Asia. As at the end of September 2014, there were 33 listed REITs in Singapore with an aggregate market capitalisation exceeding S$61 billion. MAS intends to build on the strength of our REIT regime to instil greater investor confidence and sustain trust and growth.
MAS Consultation Paper “Enhancements to the regulatory regime governing REITs and REIT managers”, October 2014
The REITs regime in Singapore was put in place some ten years ago. Since this time REITs have been subject to both MAS requirements and the listing obligations governed by the SGX.
In July 2015, MAS announced changes to its REITs regime, having sought feedback on a consultation paper a few months previously. Some of the new rules took effect on 1 January 2016, whilst others were implemented in January 2017.
Strengthening corporate governance
- In the event of a conflict of interest, the REIT manager and its individual directors will have a statutory duty to prioritise the interests of unitholders over those of the REIT manager and its shareholders.
- At least half of the REIT manager’s Board will need to be comprised of independent directors. If the REIT’s unitholders have the right to appoint the manager’s directors, only a third of the directors will need to be independent, as is the case now. To be independent, each director must meet 3 prescribed criteria. Some REITs therefore will need to reconfigure their Boards – and have until 2017 to do this.
- Managers are required to disclose their remuneration policies in the annual report. This represents a significant watering down of the original proposal which included the need to disclose specific remuneration details of directors on a named basis.
- Audit Committees, which are mandatory for REITs, will need to be made up of at least 3 independent directors – with certain requirements applying to directors from the REIT’s Sponsor.
Alignment of incentives
- Performance fees to the REIT manager are to be linked with the long term interests of the unitholders. Helpfully, MAS has stopped short of setting out which method should be used to calculated fees. Managers will also need to disclose to unitholders their justification for each type of fee charged.
- Where the remuneration of directors and employees of the REIT manager are in the form of shares in the Sponsor, this will need to be disclosed. As well the measures put in place to counter any resulting conflicts of interest.
- A REIT’s leverage limit will be increased from 35% to 45% of its total assets. The current 60% limit for REITS that have a credit rating which they disclose to the public will be removed.
- The amount that a REIT can invest in development activities will increase from the current 10% to 25% of its deposited property. Notably, specific unitholders’ approval required each time the additional 15% allowance is used. REIT managers will need to ensure that such investments fall within MAS’ definition.
- REIT managers will need Professional Indemnity Insurance – or a Letter of Undertaking from a parent undertaking of appropriate financial standing.
- MAS will provide guidance relating to the compliance checks that should be included in the annual review of the REIT manager’s internal controls.
- Certain new disclosures will need to be made in the REIT’s annual report, for instance relating to income support payments, weighted average lease expiry, and distributions per unit.
How can Bovill help?
For some REITs and their managers, the changes to MAS’ regime are significant. We’re on hand to help you to navigate these changes and put in place a manageable implantation plan.