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.