Sabana Shari'ah REIT

[Boon]

JTC's change of rule catches Reits offguard 
They have to pay land premium upfront, not rental, for industrial buildings on JTC sites. -BT 
Kalpana Rashiwala

Sun, Feb 24, 2013
The Business Times

From the beginning of this year, they have to fork out a land premium upfront to JTC for the remaining part of the lease term. They can no longer continue paying JTC a monthly land rental, if that is what the seller was doing.

Property funds like Reits buying industrial buildings from sellers on JTC-leased sites will have to re-do their sums.

From the beginning of this year, they have to fork out a land premium upfront to JTC for the remaining part of the lease term. They can no longer continue paying JTC a monthly land rental, if that is what the seller was doing.

This option of paying the land rental now remains open only to buyers who are industrialists.

The move has major implications for third-party facility providers, such as Reits but it could reduce competition from these funds faced by SMEs looking to buy their own premises.

JTC has two schemes allowing third-party facility providers to be its lessees. One allows an industrialist to sell its completed facility to say, a Reit, which in turn leases it back to the industrialist (Sale-and-Leaseback Scheme). In the Third Party Build-and-Lease Scheme, a property fund or developer agrees to build a customised facility for an end-user industrialist, to whom it leases the building. Both are aimed at helping industrialists to offload assets and lighten their balance sheets.

Explaining the rationale behind the change, JTC said: "(Our) land rental scheme serves as a form of financing as it helps end-user industrialists in their cash flow and lower their business costs. Given that third-party facility providers are not end-users..., they may obtain financing from financial institutions."

Most find the land rental payment scheme attractive - payable monthly in advance with the rate revised annually subject to a 5.5 per cent rental escalation cap. And when the market goes down, so does the rent.

BT understands that some industrial property deals that were cooking have been caught offguard by this new policy, which affects pricing. JTC did not make an announcement of the change, but merely reflected it on its website.

Under the Sale-and- Leaseback scheme, with monthly land rent no longer a payment option, the Reit would have to pay an upfront land premium to JTC for the remaining lease. This increases its acquisition price for the asset and could translate to a lower property yield.

Sources say a couple of potential industrial Reit listings are under review as their issuers study the impact of the JTC rule change on the proposed acquisition of their initial portfolio.

Lim Kien Kim, executive director (industrial) at Knight Frank said: "All things being equal, having to pay upfront land premium to JTC for the balance lease term means the price the Reit would be prepared to pay to the seller would possibly be lower."

However, there is scope for the Reit manager to come to a compromise with the seller on pricing - for example by charging the Reit a lower acquisition fee. And if the Reit manager is enjoying a lower cost of funds, the impact of this upfront land premium may not be significant for the acquisition, he said.

A property fund or developer that builds and leases a customised facility to an industrialist (under JTC's Third Party Build-and-Lease scheme) still continues to have an option of paying JTC either an upfront land premium or a monthly land rental when it enters into such a deal with the industrialist.

However, the picture changes if it later decides to sell the building to another third-party facility provider. The new buyer cannot continue with paying land rental to JTC but will have to foot an upfront land premium for the balance of the current lease term, under the new policy.

But if the buyer is an end-user industrialist, it will be able to continue paying land rent to JTC - if that was what the seller had been doing.
Knight Frank's Mr Lim said that the impact of the rule change will be felt less for bigger transactions exceeding say $20 million, as the absolute purchase price of the property will be huge relative to the upfront land premium payable to JTC; therefore, the land premium is unlikely to jeopardise such deals."

"In a way, the change will be beneficial for SMEs as most of the time, they are looking for industrial premises for their own operations costing below $20 million, so they will now not face competition in this space from third-party facility providers like Reits."

The upfront land premium is the prevailing posted land price listed on JTC's website, adjusted for the remaining tenure of the current lease term.
In cases where there is a further option for a second term of lease, the upfront premium for that will be determined after the first term ends.

Savills Singapore research head Alan Cheong reckons the change could mean the shutting of a funding tap for some industralists looking to sell their properties to Reits under sale-and-leaseback arrangements.

Nonetheless he welcomed the change. "Now, JTC's land rent system will benefit only genuine industrialists. In the past, some players masquerading as industrialists were trying to "game the system" - buying land from JTC on the land rent system to develop an industrial property and then flipping it to a Reit for a handsome profit," said Mr Cheong.

Agreeing, a market watcher said: "Whether it was a Reit or a pseudo industrialist that was tapping the monthly land rental scheme, it's a case of using public funding to further private interests."

http://www.asiaone.com/print/News/AsiaOn...03872.html
____________________________________________________________________________________________________________________

[ACTIVIST SPEAKS]

boon

wow!!! Nothing escapes you.

[Boon]

For a bit of fun........................................

47 Changi South Avenue 2 is an “interested party transaction” involving a put/call option agreement.

The purchaser is required to pay a call option fee (1%) but the seller is not required to pay a put option fee. This is not fair under normal circumstances, let alone under obvious “COI” scenario.

Technically speaking, do you think the RM/Sponsor has violated the MAS guideline by putting their interests above that of the unit holders? 
__________________________________________________________________________________________________________________

[ACTIVIST SPEAKS]

Like I say, nothing escapes you....lol. I am writing to MAS to complain about the Manager. Wonder whether I should put this just to lighten the mood.

May I know if you are in my position....how do I win this?

[Boon]

Like I say, nothing escapes you....lol.  I am writing to MAS to complain about the Manager.  Wonder whether I should put this just to lighten the mood.  

May I know if you are in my position....how do I win this?

I think you should include the “option fee” issue in your letter to MAS.
 
What is the desired outcome of your “win”, to have the RM removed?
________________________________________________________________________________________________________

[valuebuddies]

I saw plenty of accusations without verdicts. Are u not worry about defamation suit?

[ACTIVIST SPEAKS]

I stand by what I say. All my figures and facts are from SGXnet. I believe in what I am doing.

P.S I remove it as I do not want to get this site in trouble. I also ask the other complaint on the ID to be removed. I still leave them on my blog.

[weijian]

I saw plenty of accusations without verdicts. Are u not worry about defamation suit?

hi valuebuddies,
Thanks for the reminder. Normally, moderators are quite alert if there is a direct, straightforward kind of accusation, whether is it directed to any form of individual or entity.

Nonetheless, based on your reminder, i have read the last 3-4days worth of posts (starting from the CAD reporting). I observed that forumers involved are using openly available public information and have posted open ended questions as the general form of conclusion. It is up to the reader to be guided and informed to make their own conclusion/s. They also provide forumers the basis for future discussion/research. Of course, i am not a lawyer (i am in fact, an engineer) and could be totally wrong on this, while interpretations vary among individuals (especially those with power and resources i reckon!). I don't think there is any need for me (as moderator) to interfere and the direction of "where this is going" seems more value-added than disruptive to the general education of the VB investor.

Fellow moderators CY09/cyclone --> do give your thoughts on this, if any.

[laksaman57]

Please read today , 20Feb, Business Time neespaper's article on Sabana reit bcos it should help answer many questions.

[Boon]

 @ ACTIVIST SPEAKS
 
Based on the content in section 5 on “income support arrangements” of the consultation paper, I believe MAS should be in a very good position to appreciate your complaints on the MANAGER  ……………………………….
 _________________________________________________________________________________________
 
CONSULTATION PAPER
P023-2014 October 2014
 
Enhancements to the Regulatory Regime Governing REITs and REIT Managers
 
https://www.cfasociety.org/singapore/Documents/P023.pdf
 
Preface:
 
Singapore’s REIT regime was established to provide investors with an opportunity to gain exposure to real estate assets, with diversification of risks through a pooling arrangement. It was envisaged that REITs would provide investors with stable distributions through their passive ownership of income producing properties. In keeping with these objectives, REITs have to observe the Property Funds Appendix [“PFA”] of the Code on Collective Investment Schemes [“CIS Code”] which are designed to, amongst others, ensure that REITs derive revenue mainly from stable sources that are not subject to significant fluctuations. As listed investment vehicles, REITs are required to comply with the initial and on-going listing obligations under the SGX-ST Listing Manual. REIT managers are subject to licensing and business conduct rules that seek to ensure that they are fit and proper, adequately capitalised and have appropriate corporate governance arrangements in place.
 
 
Page 19
 
SECTION 5: STRUCTURING OF REITS :
 
A. INCOME SUPPORT ARRANGEMENTS
5.1. In recent years, there has been a trend towards the use of income support arrangements to enhance the yield of the properties acquired. Such arrangements can take several forms such as:
1.  (a)  a REIT acquiring a property under a sale and leaseback arrangement, under which the vendor agrees to a relatively short but expensive lease for its own use;
2.  (b)  the vendor of a property guaranteeing a certain minimum rental for a number of years after the REIT acquires the property;
3.  ©  the vendor of the property entering into a master lease agreement with the REIT at rents which are significantly higher than the existing rents of the underlying leases; and
4.  (d)  a REIT raising IPO proceeds (in excess of the amount needed to acquire the initial portfolio) and using these proceeds to support distributions to unitholders post-listing.
5.2. While there could be legitimate reasons for such arrangements in some circumstances (for example, where the property is newly completed and the rental rate or occupancy level has not stabilised), these arrangements may give rise to certain concerns, such as the following:
1.  (a)  the income support may have the effect of inflating the valuation of the property, which could result in the REIT over-paying for the property;
2.  (b)  investors may be misled by the headline yield when the income support provides only short-term enhancement to the REIT’s yield that is not sustainable after the expiration of the income support period, particularly if the income support is structured to provide a rental rate that is significantly higher than the prevailing market rental rate; and
3.  ©  the REIT may be exposed to the credit risk of the party providing the income support.
5.3. Currently, where forecasts of distribution yields are provided in prospectuses, circulars, announcements, marketing materials and other relevant documents sent to unitholders, the REIT is required to provide clear and prominent disclosure of any existing or proposed arrangement that materially enhances short-term yields while potentially diluting long-term yields. In the case of prospectuses and circulars, disclosures should include the risks associated with such arrangements and an analysis of how the arrangements may affect current and future yield. The analysis should include a computation of the forecast distribution yield assuming that the arrangements are in place. This approach relies on disclosure to impose market discipline.
5.4. MAS would like to seek views on whether the current approach is effective. If regulatory intervention is deemed necessary to deal with any potential risk of abuse, what additional measures could be considered to address the concerns mentioned above? For instance:
1.  (a)  Should MAS require the independent valuer (of a property with income support arrangement) to attest to the sustainability of the enhanced yield after the expiration of the income support period?
2.  (b)  Would a requirement that limits the period of use of income support to no more than a 3-year lease cycle (from the date of listing or acquisition) help ensure that the properties are able to achieve their target yield over time, without the need for income support?
3.  ©  Is there need for stronger measures, for instance, requiring REITs to treat all income support payments as revenue from a ‘non-stable source’ that would not comply with paragraph 7.2 of the PFA, thus curtailing the ability of REITs to derive more than 10% of their revenue from such payments?
5.5. MAS welcome views on this issue and will take them into account in formulating appropriate measure(s) to deal with the risks associated with income support arrangements.
Q16: MAS invites comments on the following:
1.  (a)  whether the current approach of relying on disclosure to impose market discipline
on the use of income support arrangements is effective; and
2.  (b)  if regulatory intervention is deemed necessary, what additional measures could be
considered to address the concerns with the use of such arrangements? 
_______________________________________________________________________________________________________