MAS proposals: no negatives
- None of three key potentially “negative” proposals implemented: periodic reappointment of managers, acquisition/divestment fees on cost recovery & interested party divestments.
- Most “positive” proposals implemented, so is “Neutral” proposal of 45% single-tier gearing.
- Overall no negative outcome for the sector. Remain UW on SREITs due to oversupply amid weak demand.
None of three “negative” proposals implemented
Periodic re-appointment of REIT managers.
- This proposal was the most feared by sponsored REITs as it could have deterred developers from injecting assets into their REITs given risks of losing control.
- MAS has decided that the current approach, where typically 10% of unitholders could convene an EGM and remove the manager by a simple majority, is sufficient.
Acquisition/divestment fees based on cost recovery.
- We pointed out that this could dis-incentivise acquisition growth as it meant that a manager could not be compensated for the search process.
- MAS instead requires the manager to disclose that the fees align the manager’s interest with the long-term interests of the REIT.
For asset divestments to an interested party (IP), audit committee to certify no other better offer available from non-IP.
- This implies a public tender has to be called, which is not even a requirement for listcos.
- We also pointed out that highest divestment gain may not mean the best long-term returns e.g. FCOT’s sale of GFA at China Square to FCL for hotel redevelopment will likely boost China Square’s long-term value.
- MAS confirmed no public tender required, only requiring ACs to confirm due processes to ensure that the offer from the IP would be in line with a non-IP’s offer.
Positive & neutral proposals implemented
Development limit from 10% to 25% of deposited property.
- MAS will require unitholders’ approval each time the extra 15ppts is used, to guard against unilateral raising of the REIT’s risk profile.
Income support to go beyond disclosure.
- Current practice is for the nature of support to be disclosed, but now MAS will require annual disclosure of the effect of the support on DPU.
- We interpret this as quantifying DPU with and without the support.
Fees on a “per unit” rather than gross basis.
- MAS has agreed not to prescribe fee methodologies but reiterated that fees should be aligned with long-term unitholder interests.
Single-tier 45% aggregate leverage.
- MAS noted that rated REITs have kept this below 45% despite being able to gear themselves to 60%. The 45% level being a good balance between over-gearing and a mechanistic reliance on credit ratings.
No negative outcome, but still UW
- We do not expect any impact but remain UW SREITs on oversupply.
Peer Comparison
(Joshua Tan; Derrick Heng, CFA)
Source: http://www.maybank-ke.com.sg
