New SC measures to boost REITs industry

The SC in its revised REITS guidelines which came into effect on 21 August 2008, has just announce some of the following measures to enhance the attractiveness of Bursa Malaysia as a destination for REIT listings and promote a vibrant and competitive REIT industry domestically and regionally:

•REIT would now be able to acquire property under construction or uncompleted real estate. However, a REIT is only allowed to acquire property under construction or uncompleted real estates up to 10% of their total asset value.

•REITs still cannot acquire non-income generating real estates such as vacant land.

•More freedom for REIT managers to invest in foreign real estate

•Allowing a portion of a REIT’s portfolio to consist of properties it does not wholly own or have majority ownership.

•REIT managers had to appoint a designated person responsible for compliance. This is to ensure that securities laws, land laws and guidelines and rules are complied with at all times.

•On the issue of units for cash (other than rights issue), the number of units to be issued must not exceed 20% of the approved fund size while the placement to one single placee must not exceed 10% of the approved fund size.

•Foreigners can now own up to 70% of the real estate investment trusts (REIT) management companies, up from 49% since 2005.

According to experts, benefits/effects accruing from the above are:

•REITS are able to acquire partially completed building REIT could now participate in the construction too. A REIT will then be able to buy assets at a lower price and if there is a contracted tenant, as a result the REIT can obtain higher yield.

•There are some clear move that that SC’s is moving toward enhancing corporate governance among REITs, including the setting up of internal auditors and the harmonising of the rules for REITs was good.

•The SC’s conditions for issuance of units for cash other than rights issues-this could hinder the capital raising exercises of smaller REITs whose fund size is less than RM100mil. However, this ruling would not have an effect on the larger players.

•REIT managers would have more freedom to invest in foreign real estates.

•It also allowed a portion of a REIT’s portfolio to consist of real estates that it does not wholly own or have a majority ownership.

•REIT Managers are now able to raise funds faster for acquisitions or capital expenditure purposes.

•REIT Managers are now allow to seek a general mandate from unit holders for issuance of units up to 20% of its fund size. Previously, the issuance of any number of new units required REIT Managers to hold meetings to seek unit holders’ specific approval.
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Source: http://reits.a-z-finance.net/