Analysing REITS

[CityFarmer]

Reits holder generally just want a stable yield
adding more development limit to a reit really has no meaning

True but take note of the provision:

3.6. Taking into account the greater need for REITs to rejuvenate their properties, MAS proposes to allow a REIT to undertake development activities up to 25% of its deposited property, but only if:

(a) the REIT obtains specific unitholders’ approval for the higher development limit of 25%; and

(b) the additional 15% allowance (over and above the current 10% limit) is utilised solely for the redevelopment of an existing property that has been held by the REIT for at least 3 years and which the REIT will continue to hold for at least 3 years after redevelopment.

So the 25 % is applicable to AEI only ??

To be precise, only 15% is applicable to AEI. The rest of 10% remains the same as before

[swakoo]

Yeah, a very massive AEI and it's the additional 15% that is tied to this provision.

My favourite part of these proposals is how MAS wants to tackle financial engineering in the form of income support.

[cfa]

Income support is the same concept of ''Rental guaranteed for certain years'' by developers , a marketing gimmick .
Seller sells at a higher price to buyers and use the extra ''higher price '' as guaranteed rentals.
Keppel land always applied this to its reit unitholders when they offloaded their properties to Keppel reit.

[Pain]

Income support is the same concept of ''Rental guaranteed for certain years'' by developers , a marketing gimmick .
Seller sells at a higher price to buyers and use the extra ''higher price '' as guaranteed rentals.
Keppel land always applied this to its reit unitholders when they offloaded their properties to Keppel reit.

Do you think that this method will be done in the interest of reit unitholders as developer(seller) can 'offload' properties to its buyer which in this case is their reit? I seen developers are thinking or 'creating' reits e.g. CDL is thinking of reits for some properties.

[specuvestor]

There's an error in CNA's reporting:

Q11: MAS seeks views on its proposal to adopt a single-tier leverage limit of 45% (without requirement for credit rating) and remove the option for a REIT to leverage up to 60% by obtaining a credit rating.

Source: http://www.mas.gov.sg/News-and-Publicati...agers.aspx

Good on lanoitar for making the effort to verify the accuracy of the CNA report. I was just as stumped as others on first reading the CNA report which stated a proposal to let reits have essentially unlimited gearing! They might just as well paste the password on the "ATM".

The actual MAS proposals are an excellent effort to secure the "ATM" in favour of unitholders.

Nice going lanoitar, mistake to assume the headlines are not skewed even from CNA

Now it doesn't seemed like MAS lost their head Wonder what is impact on ARA but i think nice timing John

[Ray168]

Time for an overhaul: MAS zooms in on aging REITs in proposed policy shift

Find out what analysts have to say.

It’s high time to overhaul Singapore’s maturing REIT sector, and the Monetary Authority of Singapore has unveiled a series of changes in a 37-page consultation paper that was released yesterday.

The move aims to enhance operational flexibility and improve transparency for the SREITs, which improve its attractiveness to both issuers and investors.

Under the proposed changes, the MAS aims to lower the borrowing limit for unrated REITs from 35% to 45% of total assets and remove the 60% cap limit for REITs with credit ratings.

The development limit will also be raised to 25% of its deposited property, from 10% currently. This aims to provide the REIT with greater operational flexibility to rejuvenate the REIT's maturing portfolio of assets.

There will also be changes to the remuneration of REIT managers. Under the proposed changes, REITs will be made to disclose the payment policy for directors and executive officers, as well as the remuneration of each individual director and CEO of the REIT manager, on a named basis.

The salaries of at least the top five key executive officers of the REIT manager will also be revealed on a named basis, in bands of S$250,000.

Analysts are united in saying that the move is positive for the REIT sector. According to Barclays, for instance, the key positives include potentially lower manager fees in the future, coupled with better disclosures across remuneration and income support arrangements which could also improve unitholders’ trust in manager and sponsor.

Meanwhile, OSK DMG stated that the move will give S-REITs more operational flexibility to rejuvenate their maturing portfolio of assets. This would benefit REITs with ageing properties, and incentivise them to carry out redevelopment works of their own, without assistance from their sponsors.

“We are positive on these proposed enhancements by the MAS and believe the higher limits for development and gearing – while still capped at fairly prudent limits, in our view – will give REIT managers more flexibility in optimizing their asset portfolios and capital management. In addition, changes for stronger governance will generally strengthen the S-REITs’ appeal towards the investment community,” added OCBC.

Proposed MAS changes to REIT regulations include higher borrowing limits


The proposed changes include higher borrowing limits and tougher disclosure standards, MAS said in a consultation paper released on Thursday (Oct 9).

SINGAPORE: The Monetary Authority of Singapore (MAS) has proposed changes to the regulatory framework for real estate investment trusts (REITs), including a relaxation of borrowing limits for these property investment vehicles.

Other proposed changes include tougher disclosure standards and letting REITs get more involved in development projects, MAS said in a consultation paper released on Thursday (Oct 9).

"The proposals will enhance the transparency and corporate governance of the REIT market and improve its attractiveness to issuers and investors," MAS said.

As of Sep 30, there were 33 Singapore REITs with total market capitalisation of S$61 billion.

MAS proposed increasing the leverage, or borrowing, limit imposed on unrated REITs to 45 per cent of total assets from the current 35 per cent. For REITs with credit rating, the present 60 per cent cap on leverage will be removed.

Meanwhile, the development limit for a REIT will be raised to 25 per cent of its deposited property, up from 10 per cent. These proposed changes will provide the REIT with greater operational flexibility to rejuvenate the REIT's maturing portfolio of assets, MAS said.

In terms of disclosure requirements, MAS proposed REITs be made to provide information such as the amount of income support payments received as well as the remuneration policy for directors and executive officers.

Those wishing to comment on MAS's consultation paper on REITs should do so by Nov 10.

- CNA/xk
MAS propose changes in REITs

[CY09]

Doing a quick analysis of the REITS' data. Assuming the cap kicks in, K-reit and FHT will be very close to the 45% cap. K-reits leverage ratio will be 43.8% post equity raising for purchasing a 33.3% stake in mbfc, Fraser Hos is 41.3% .A slight fall of 10% in the valuation of their portfolio will lead to capital raising exercise. Rising interest rates may also result in higher capitalization rates, which lowers valuation of properties and is a methodology commonly used in valuation. Talks with people seems to indicate the cap rates for Office ppty in Singapore central area is currently 3.9%, while Hotels is 4.7%. Thus, for k-reit whose geographical focus is mainly Singapore (86%), Aussie (14%). The risk is real that a rise in 1% risk free rate can reduce K-reits properties value by up to 23%. For those who support K-reit, all is not lost. All you have to do is hope the booming office rental market can enable K-reits to up their rental rates by 23%. Pretty sure K-reits directors will be providing their inputs to MAS

While for FHT as it has a wide geographical spread, the cap rate differs across countries and this makes it hard for me to forecast how interest rates will affect valuation

[Boon]

Doing a quick analysis of the REITS' data. Assuming the cap kicks in, K-reit and FHT will be very close to the 45% cap. K-reits leverage ratio will be 43.8% post equity raising for purchasing a 33.3% stake in mbfc, Fraser Hos is 41.3% .A slight fall of 10% in the valuation of their portfolio will lead to capital raising exercise. Rising interest rates may also result in higher capitalization rates, which lowers valuation of properties and is a methodology commonly used in valuation. Talks with people seems to indicate the cap rates for Office ppty in Singapore central area is currently 3.9%, while Hotels is 4.7%. Thus, for k-reit whose geographical focus is mainly Singapore (86%), Aussie (14%). The risk is real that a rise in 1% risk free rate can reduce K-reits properties value by up to 23%. For those who support K-reit, all is not lost. All you have to do is hope the booming office rental market can enable K-reits to up their rental rates by 23%. Pretty sure K-reits directors will be providing their inputs to MAS

While for FHT as it has a wide geographical spread, the cap rate differs across countries and this makes it hard for me to forecast how interest rates will affect valuation

These are some interesting observations (By CBRE) on Cap Rate and Interest Rates
http://www.cbre.com/AssetLibrary/Interes..._Rates.pdf

IMO, impacts of interest rates on cap rates and hence property values are a lot more complex than what you have described.

[CY09]

Hi Boon,

It is true that cap rate consists of two aspects - growth and risk. I have been focusing on the risk aspect of cap rate. However, if all other factors remain the same, the rise in interest rates will affect cap rates.

If we are to argue that the growth potential will rise in tandem to offset discount rate hike (increase in risk free rate) for office ppty, i truly doubt so. The CBD area will have 3 main buildings TOPing in 2016 - GuocoTower, capita green and Robinson Suites. There are 6 other smaller office complexes completing, thus an office supply rise is imminent. Similarly, the east side of Singapore has more offices spaces sprouting out, Paya Lebar and JE will have two completed office complexes by 2015 each. Doubt EDB is so good to attract enough companies to set up offices so that office rental rates will grow at 7% YoY.

I have similar views for retail component too with so many retail malls appearing. In fact some mrt places outside central region has 2-3 malls in the same area. I don't find this sustainable and something has to give soon.

[Ray168]

A Welcome Change - CIMB

Time for an overhaul: MAS zooms in on aging REITs in proposed policy shift

Find out what analysts have to say.

It’s high time to overhaul Singapore’s maturing REIT sector, and the Monetary Authority of Singapore has unveiled a series of changes in a 37-page consultation paper that was released yesterday.

The move aims to enhance operational flexibility and improve transparency for the SREITs, which improve its attractiveness to both issuers and investors.

Under the proposed changes, the MAS aims to lower the borrowing limit for unrated REITs from 35% to 45% of total assets and remove the 60% cap limit for REITs with credit ratings.

The development limit will also be raised to 25% of its deposited property, from 10% currently. This aims to provide the REIT with greater operational flexibility to rejuvenate the REIT's maturing portfolio of assets.

There will also be changes to the remuneration of REIT managers. Under the proposed changes, REITs will be made to disclose the payment policy for directors and executive officers, as well as the remuneration of each individual director and CEO of the REIT manager, on a named basis.

The salaries of at least the top five key executive officers of the REIT manager will also be revealed on a named basis, in bands of S$250,000.

Analysts are united in saying that the move is positive for the REIT sector. According to Barclays, for instance, the key positives include potentially lower manager fees in the future, coupled with better disclosures across remuneration and income support arrangements which could also improve unitholders’ trust in manager and sponsor.

Meanwhile, OSK DMG stated that the move will give S-REITs more operational flexibility to rejuvenate their maturing portfolio of assets. This would benefit REITs with ageing properties, and incentivise them to carry out redevelopment works of their own, without assistance from their sponsors.

“We are positive on these proposed enhancements by the MAS and believe the higher limits for development and gearing – while still capped at fairly prudent limits, in our view – will give REIT managers more flexibility in optimizing their asset portfolios and capital management. In addition, changes for stronger governance will generally strengthen the S-REITs’ appeal towards the investment community,” added OCBC.

Proposed MAS changes to REIT regulations include higher borrowing limits


The proposed changes include higher borrowing limits and tougher disclosure standards, MAS said in a consultation paper released on Thursday (Oct 9).

SINGAPORE: The Monetary Authority of Singapore (MAS) has proposed changes to the regulatory framework for real estate investment trusts (REITs), including a relaxation of borrowing limits for these property investment vehicles.

Other proposed changes include tougher disclosure standards and letting REITs get more involved in development projects, MAS said in a consultation paper released on Thursday (Oct 9).

"The proposals will enhance the transparency and corporate governance of the REIT market and improve its attractiveness to issuers and investors," MAS said.

As of Sep 30, there were 33 Singapore REITs with total market capitalisation of S$61 billion.

MAS proposed increasing the leverage, or borrowing, limit imposed on unrated REITs to 45 per cent of total assets from the current 35 per cent. For REITs with credit rating, the present 60 per cent cap on leverage will be removed.

Meanwhile, the development limit for a REIT will be raised to 25 per cent of its deposited property, up from 10 per cent. These proposed changes will provide the REIT with greater operational flexibility to rejuvenate the REIT's maturing portfolio of assets, MAS said.

In terms of disclosure requirements, MAS proposed REITs be made to provide information such as the amount of income support payments received as well as the remuneration policy for directors and executive officers.

Those wishing to comment on MAS's consultation paper on REITs should do so by Nov 10.

- CNA/xk
MAS propose changes in REITs