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The Monetary Authority of Singapore (MAS) has refined its proposals to strengthen the REITs market, in response to industry feedback.
2 In issuing its response to feedback on its consultation paper of 9 October 2014, MAS said that it would implement these key measures to accord REIT unitholders better protection and greater accountability while providing REIT Managers increased operational flexibility.
(a) Strengthen corporate governance. Related party transactions can be substantial and frequent in REITs, hence Managers should be held to a high corporate governance standard. As such:
- Managers and their directors will be bound by a statutory duty to prioritise the interests of REIT unitholders over the interests of the Managers and their shareholders, in the event of a conflict of interest.
- At least half of the Manager’s board of directors must be independent directors if unitholders do not have the right to appoint the Manager’s directors.
- Managers will be required to disclose their remuneration policy and procedures in the REITs’ Annual Reports. This will (i) improve market discipline and the Managers’ accountability to the unitholders when setting the remuneration for their directors and executive officers; and (ii) help investors better understand how potential misalignment of interest has been addressed. This revised position takes into account the consultation feedback that there is no need to mandate disclosure of the remuneration of each director and key executive officer.
(b) Increase transparency of fee structure. MAS will not intervene on the structure of fees or types of fees that Managers charge, but will require them to disclose the justification for each type of fees charged. Managers will also have to explain the methodology for computing performance fees, and justify how this methodology takes into account unitholders’ long-term interests. This revised position will provide greater clarity to investors on the various types of fees charged by Managers, without being over-prescriptive on how fees should be charged.
(c) Allow greater operational flexibility. The development limit of a REIT will be increased from 10% to 25% of its deposited property. In addition, the leverage limit imposed on a REIT will be increased from 35% to 45% of the REIT’s total assets, but a REIT will no longer be allowed to leverage up to 60% with a credit rating. These proposed changes will provide a REIT with greater operational flexibility to rejuvenate its maturing portfolio of assets. MAS will also continue to allow stapled securities structures with a REIT component to operate without group operational limits. The REIT component will continue to be subject to existing limits.
3 MAS notes respondents’ feedback that the existing approaches of relying on (i) unitholders to initiate a review of a Manager’s appointment; and (ii) disclosure to impose market discipline on the use of income support arrangements, are broadly effective. Hence, MAS is not proposing any regulatory intervention on these arrangements. MAS would also like to clarify, following questions from some respondents, that internally managed REIT structures are allowed in Singapore.
4 The enhancements to strengthen the REIT market will be phased in to facilitate a smooth implementation by the industry. Details of the finalised positions are set out in the response to the feedback received from the public consultation, which can be found here.
5 Mr Lee Boon Ngiap, Assistant Managing Director, Capital Markets, MAS, said, “We appreciate the useful comments and suggestions received from the REIT Consultation, which attracted keen interest from the industry. The finalised positions reflect a balanced approach to enhancing safeguards for investors and unitholders while facilitating the growth of a vibrant REIT market.”
