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New rules to shield REIT investors

New rules proposed for the booming real estate investment trust (Reit) sector will bring more disclosure over executive pay, shake up the fee structure and ensure that the interests of unitholders are paramount.

The proposals were unveiled by the Monetary Authority of Singapore (MAS) yesterday in a consultation paper aimed at strengthening what has become an industry with assets of around $61 billion and a large following among retail investors.

Reit managers said some of the proposals could benefit the industry and investors, although others might make it tougher for trusts to compete.

One key proposal is that managers and directors should have a statutory duty to prioritise investors’ interests over those of the Reit manager and sponsor.

This could help guard against conflicts of interest, and may prevent Reits from overpaying for assets bought from their sponsors, for instance.

It is also proposed that Reits change how a manager’s performance fees are structured so that they are aligned with investors’ long-term interests.

Reits may also be required to disclose more information in their annual reports, including how much income support they get.

Income support involves the Reit sponsor stepping in to top up a property’s income if it falls short of certain thresholds. But the practice could lead to the property being overvalued.

The suggested rule changes would also give Reits more flexibility to develop property.

Trusts can now develop a project only if the cost does not exceed 10 per cent of the trust’s total asset size, but that limit could be raised to 25 per cent.

Ascendas Reit (A-Reit) told The Straits Times yesterday that the move to address any perceived potential conflicts of interest could benefit the market.

“The interests of unitholders must rank supreme,” an A-Reit spokesman said in an e-mail.

A-Reit also welcomed the higher development limits, but pointed out that disclosing certain information about leases “may compromise a Reit’s strategy and competitiveness” and therefore may not benefit unitholders.

“In the longer term, it may be necessary to consider an independent Reit legislation to govern the industry,” A-Reit added.

Other Reits said they were still reviewing the consultation paper.

There are 33 Reits in Singapore, accounting for around 8 per cent of the Singapore Exchange’s total market value.

Reit market watchers said the proposals would bring industry practices and requirements closer to those already in place for listed corporate boards.

“There will be greater clarity on the duty of Reit managers,” said Mr Robson Lee, partner at law firm Shook Lin & Bok.

Ms Rachel Eng, who heads the Reits team at law firm WongPartnership, said: “Hopefully, the market and the MAS will identify the right combination of rules that will enhance corporate governance and accountability.”

The consultation paper is available on the MAS website. Members of the public have till Nov 10 to send their feedback.

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