The Monetary Authority of Singapore (the “MAS”) has issued a “Consultation Paper on Enhancements to the Regulatory Regime Governing REITs and REIT Managers” (the “Consultation Paper”). The consultation closes on 10 November 2014. The Consultation Paper contains proposals which cover the following five main areas:
- Strengthening corporate governance: Proposed measures include:
- Imposing a statutory duty on real estate investment trust (“REIT”) managers and their directors to prioritise the interests of unitholders over the interest of the REIT managers and their shareholders;
- Enhancing the independent element of the board of directors (the “Board”) through either one of two possible arrangements:
- Where unitholders do not have the right to vote on the appointment of directors to the Board, at least half of the Board shall comprise independent directors, while at least one third of the Board shall comprise independent directors if unitholders have a right to vote; or
- At least a majority of the Board to comprise independent directors;
- Aligning incentives between the REIT manager and unitholders: Proposed measures include:
- Performance fees to be calculated and payable based on the following principles:
- The crystallisation of the performance fee should not occur more than once annually;
- The performance fee should take into account the long-term interest of the REIT and its unitholders such as net asset value per unit or distributions per unit; and
- The performance fee should not be linked to the REIT’s gross revenue;
- REIT managers will only be allowed to charge acquisition or divestment fees on a “cost recovery” basis.
- Enhancing operational flexibility: For instance, to provide greater operational flexibility, the MAS proposes to adopt a single-tier leverage limit of 45% for all REITs.
- Enhancing operational requirements on REIT managers: To enhance the operational requirements on REIT managers, the MAS is proposing changes to the current regulatory regime to, among others, enhance compliance function and property management function.
- Structuring of REITs: In this regard, the MAS has raised concerns about the increasing use of income support arrangements and the use of stapled securities structure.
Savings and transitional provisions
The MAS has proposed to provide for savings and transitional provisions as follows:
- In relation to the proposed requirements on independence and Board composition, the amendments will take effect no later than the first annual general meeting relating to financial years ending on or after 31 December 2015; and
- In relation to proposed amendments to the Securities and Futures Act and the Code on Collective Investment Schemes (the “CIS”), the amendments will take effect on 1 January 2016.
The following materials are available from the MAS website www.mas.gov.sg:
- Press release
- Consultation paper
- Appendix 1 Draft Amendments to the SFA
- Appendix 2 Draft Amendments to the SFLCBRegs
- Appendix 3 Draft Notice to all holders of a Capital Markets Services Licence for REIT Management
- Appendix 4 Draft Guidelines to all holders of a Capital Markets Services Licence for REIT Management
- Appendix 5 Draft Amendments to the Code on CIS