ASIC releases updated disclosure guidance for unlisted property funds

The unlisted property fund industry is the latest recipient of ASIC’s ‘if not why not’ benchmark model of disclosure, set out in the recently updated Regulatory Guide 46 Unlisted property schemes: Improving disclosure for retail investors. From 1 November 2012, all new disclosure statements must incorporate the changes, which include clear and prominent disclosure of the benchmarks and disclosure principle information. Responsible entities of existing unlisted property schemes will need to provide the benchmark and updated disclosure principle information to investors before 1 November 2012.

Overview

From 1 November 2012, the unlisted property fund industry will need to adopt ASIC’s ‘if not why not’ benchmark model of disclosure, set out in the updated Regulatory Guide 46 Unlisted property schemes: Improving disclosure for retail investors (RG 46). This is the latest of a series of ASIC guidance, which has imposed the ‘if not why not’ benchmark model of disclosure on the debenture (RG 69), mortgage scheme (RG 45), infrastructure (RG 231), over-the-counter contracts for difference (RG 227) and agribusiness (RG 232) industries.

RG 46 applies to unlisted property schemes in which retail investors have a direct or indirect investment. An ‘unlisted property scheme’ is defined as an unlisted managed investment scheme that has or is likely to have at least 50% of its non-cash assets invested in real property and/or in unlisted property schemes.

RG 46 has been amended in response to ASIC’s concern that responsible entities adopt inconsistent approaches to disclosure, resulting in important information being omitted from disclosure to investors, and preventing the overall comparability of investments within the unlisted property fund sector. The changes in RG 46 are the result of an extended consultation process, including industry feedback (see CP 163 and REPORT 280).

ASIC has developed six benchmarks in the following areas: gearing, interest cover, interest capitalisation, valuations, related party transactions and distribution practices (all new additions – see page 3 of link for a summary); and amended the eight disclosure principles (seven existing, with ‘valuation’ moved to being a benchmark and a new ‘net tangible assets’ disclosure principle – see page 5 of link for a summary) for unlisted property schemes that ASIC believes will help retail investors understand the risks, assess the rewards being offered and decide whether these investments are suitable for them.

Responsible entities of unlisted property schemes offered to retail investors, or in which retail investors have invested should:

  • disclose against the benchmarks on an ‘if not, why not’ basis; and
  • apply the disclosure principles.

ASIC has also amended RG 46 to include further guidance on how responsible entities can make their disclosures ‘clear, concise and effective’, and its recent statements in relation to the advertising and promotion of financial products.

Some important points to note from the RG 46 amendments:

  • Responsible entities must:
    • maintain and comply with a written policy that governs the level of gearing at an individual credit facility level, or explain why they do not;
    • maintain and comply with a written policy that governs the level of interest cover at an individual credit facility level, or explain why they do not;
    • disclose that the interest expense of the scheme is not capitalised, or explain why it is;
    • maintain and comply with a written valuation policy that accords with the specific requirements of RG 46, or explain why they do not;
    • maintain and comply with a written policy on related party transactions, including the assessment and approval processes for such transactions, or explain why they do not; and
    • only pay distributions from its cash from operations (excluding borrowings) available for distribution, or explain why it does otherwise.
  • Several amendments to the disclosure principles have been made. Responsible entities must carefully consider these and ensure that disclosure is adequate. In particular, disclosure in relation to net tangible assets on a per unit basis is now required.
  • An ‘investment overview’ is strongly recommended by ASIC in order to ensure that a PDS is presented in a clear, concise and effective manner.

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