Reits Free To Set Fees But Must Justify Them

Foreword from ShareInvestor

This article “Reits Free To Set Fees But Must Justify Them” by Jacqueline Woo was first published in The Straits Times on 03 Jul 2015 and is reproduced in this blog in its entirety.

MAS relents in that area, will go ahead with other rules to give investors more protection

Most of the proposed changes for the booming property trust sector will go ahead but one particularly controversial suggestion has been thrown out.

The new measures are aimed at providing real estate investment trust (Reit) investors with “better protection and greater accountability”, while providing managers more flexibility operationally, the Monetary Authority of Singapore (MAS) said yesterday.

It sought public feedback on the proposals in October last year .

Under the new rules, Reit managers and their directors will be bound by a statutory duty to put investors’ interests above those of the manager and the sponsor, in the event of a conflict of interest. Reit managers who fail to do so could be jailed.

Reits will be required to disclose the salaries of all directors and top executives on a “comply-or-explain” basis, rather than on a mandatory basis, as mooted earlier. They will also need to disclose their remuneration policies and procedures in their annual reports.

The development limit for a Reit, currently at 10 per cent of its total assets, will be raised to 25 per cent.

Its leverage cap will also be lifted, from 35 per cent to 45 per cent of its total assets, without a credit rating. A Reit that has been rated by a ratings agency will no longer be allowed to borrow up to 60 per cent of its total assets, when the new rules come into force.

These changes will “provide a Reit with greater operational flexibility to rejuvenate its maturing portfolio of assets”, MAS said.

Some proposed changes, however, were scrapped.

Notably, MAS said it will not intervene in terms of the structure or type of fees that managers charge, although it will require them to provide justification for imposing such fees. It previously suggested allowing Reit managers to charge an acquisition or divestment fee only if it is determined using a cost-recovery basis – a move that was not popular with market players.

Mr Sonny Tan, chief executive of the Reit Association of Singapore, cheered MAS’ move.

He said that it was important to “let the market decide”.

“I think that as a Reit market, we’ve come of age after 13 years and we’re a lot more mature now,” he said. “Intervening will only distort the market forces at play.”

Singapore’s Reit market – comprising 34 trusts worth about $64 billion – is the second-largest in Asia after Japan.

Mr David Gerald, president and chief executive of Securities Investors Association (Singapore), said that the set of new rules was “balanced and aligned” with the interests of both unit-holders and Reit managers.

Industry players, such as Mapletree Investments which holds four Reits, welcomed the new rules , and said most of MAS’ requirements are already in place. Mapletree said it will “further review and make necessary refinements, if needed”.