THE Monetary Authority of Singapore has proposed new amendments to the current REIT regime aimed at improving safeguards to protect investors and removing concerns such as "financial engineering".
Yesterday, the monetary and financial body released a policy consultation paper on the proposed amendments to the Property Fund Guidelines under the Securities and Futures Act.
MAS said the Singapore REIT market continues to witness robust growth and as of February 28, 2007, there were 15 listed REITs with an aggregate market capitalisation of more than $S25 billion.
MAS said there is also a healthy pipeline of proposals seeking to securitise real estate located in the Asia-Pacific region and to keep pace with market development, MAS is proposing amendments to the REIT Guidelines.
In the MAS consultation paper, the authority said “Some REIT managers have attempted to use financial engineering to boost short-term yields for REITs to improve their attractiveness to IPO investors. MAS is concerned that the costs of such short-term yield – enhancing arrangements and their negative impact on long-term returns may not be adequately disclosed or understood by investors.
“To ensure that investors are aware of the longer-term effects of short-term yield enhancing arrangements, MAS has been reviewing REIT applications to ensure that all financial engineering arrangements as well as their associated financial effects and risks are prominently disclosed,” the policy said.
MAS is also proposing to disallow arrangements at IPO that entrench REIT managers, adding “There have been attempts by REIT managers to entrench themselves through arrangements such as long-term management contracts and high termination fees. Although various arguments have been put forth to justify such entrenchment arrangements, MAS is concerned that these arrangements would impede the market for corporate control and has discouraged their use in recent IPOs,”
MAS has proposed a number of amendments, including establishing measures to safeguard the interests of unitholders, including enhancing disclosure on short-term yield; disallowing arrangements at IPO that entrench REIT managers; disallowing discounts to institutional investors at IPO.
MAS is also proposing to increase the minimum threshold for investment in real estate, by removing the 5% Single Party Limit for investments in real-estate related securities and allowing joint ownership through investments as tenants-in common.
Another MAS proposal concerns REIT managers offering discounts to institutional investors for subscribing to substantial amounts of IPO units.
MAS said REIT managers have argued that such discounts help to establish a stable base of large investors by compensating them for committing to subscribe for substantial amounts of IPO units.
“However, MAS is of the view that such differential pricing would disadvantage retail investors. To maintain the principle of fair and equitable treatment of all investors in terms of pricing, MAS has discouraged discounts to institutional investors at IPO and intends to formalise this position in the REIT Guidelines,” MAS said.
The monetary body has invited interested parties to comment on the proposed REIT Guidelines policy and submit their views by April 23, 2007.
Australian Property Journal
