MAS weighs in on Reit sector debate

Published November 22, 2011

By JAMIE LEE

(SINGAPORE) The Monetary Authority of Singapore (MAS) may offer more regulatory guidance to the real estate investment trust (Reit) industry in efforts to boost corporate governance standards, it said yesterday.

MAS did not highlight specific companies but was responding to criticism that current rules governing the Reit sector fail to protect the interests of minority shareholders.

Central to this brewing debate is the $1.57 billion sale of Keppel Land's entire stake in Ocean Financial Centre to K-Reit Asia - a plan that was criticised by shareholders for both the timing and price. The deal was approved but through a show of hands at the shareholders' meeting - a voting system that the Singapore Exchange (SGX) is proposing to ban.

Under a show-of-hands system, each person gets a single vote regardless of the number of shares he holds. The alternative of poll voting gives each shareholder voting rights according to the size of his shareholding.

'The current code on collective investment schemes under MAS, which regulates Reits, is not robust enough to prevent unscrupulous Reits from taking advantage of minority shareholders,' said reader Bobby Jayaraman in a letter to The Business Times on Nov 16.

'The major culprit is the incentive system for Reits, which does not always align with shareholder interests,' he added.

Rather that be compensated based on factors such as the value of assets, net property income and acquisition fees, Reit managers should be paid based on a combination of growth in distribution per unit and market valuation of the Reit, said Mr Jayaraman.

In response, MAS director of communications Angelina Fernandez said in a letter: 'MAS will consider issuing further guidance to the industry as part of our ongoing effort to enhance corporate governance in Reits and other listed entities.'

The regulator reminded companies and boards to uphold high corporate governance standards. 'Corporate governance rules and guidelines cannot envisage all possible circumstances,' Ms Fernandez said.

'When observing such rules and guidelines, companies and their boards must always bear in mind the interests of shareholders or unitholders; and not take an overly technical approach,' she added.

MAS highlighted current rules that are in place to safeguard investor interest when it comes to interested party transactions. For example, transactions that represent at least 5 per cent of the Reit's net asset value are subject to voting by independent unitholders, and two independent valuations have to be obtained - one for the Reit manager, and another for the sponsor.

Limits are also set on the sale and purchase prices, and acquisition fees paid to the manager are in the form of units that can be sold only after a year. - BT