(Just for General Info)
7.1 A property fund should comply with the following restrictions/ requirements:
(a) Subject to paragraph 7.3, at least 35% of the property fund’s deposited property should be invested in real estate. A new scheme will be given 24 months from the close of the first launch/offer to comply with this requirement;
(b) At least 70% of the property fund’s deposited property should be invested, or proposed to be invested, in real estate and real estate-related assets;
(c) A property fund should not undertake property development activities whether on its own, in a joint venture with others, or by investing in unlisted property development companies, unless the property fund intends to hold the developed property upon completion. For this purpose, property development activities do not include refurbishment, retrofitting and renovations.
(d) A property fund should not invest in vacant land and mortgages (except for mortgage-backed securities). This prohibition does not prevent a property fund from investing in real estate to be built on vacant land that has been approved for development or other uncompleted13 property developments.
(e) The total contract value of property development activities undertaken and investments in uncompleted property developments should not exceed 10% of the property fund’s deposited property; and
(f) For investments in listed or unlisted debt securities and listed shares of or issued by property and non-property corporations (local or foreign) and other locally-registered property funds, not more than 5% of the property fund’s deposited property can be invested in any one issuer’s securities or any one manager’s funds. A corporation and its subsidiary companies are regarded as one issuer or manager. Investments in other property funds should not be made with a view to circumventing the letter or spirit of the prohibition on interested-party transactions set out in paragraph 5.
Showing posts with label Property Sector- Real Estate Funds. Show all posts
Showing posts with label Property Sector- Real Estate Funds. Show all posts
Leverage Limit of REITs (Singapore)
Aggregate Leverage Limit (Revised 20 Oct 2005. Just for general info.)
9.1 Borrowings15 may be used for investment or redemption purposes. A property fund may mortgage its assets to secure such borrowings.
9.2 The total borrowings and deferred payments16 (together the “aggregate leverage”) of a property fund should not exceed 35% of the fund’s deposited property. The aggregate leverage of a property fund may exceed 35% of the fund’s deposited property (up to a maximum of 60%) only if a credit rating of the property fund from Fitch Inc., Moody’s or Standard and Poor’s is obtained and disclosed to the public. The property fund should continue to maintain and disclose a credit rating so long as its aggregate leverage exceeds 35% of the fund’s deposited property.
9.3 If borrowings are to be used to fund partly or wholly the purchase of a new property, the value of the deposited property used for determining the aggregate leverage may include the value of the new property that is being purchased, provided that:
(a) the borrowings are incurred on the same day as that on which the purchase of the property is completed; OR if the borrowings are incurred before the purchase of the property is completed, those borrowings are kept in a separate bank account that is established and kept by the property fund solely for the purpose of depositing such monies;
(b) the monies raised by such borrowings are utilised solely for the purchase of the property including related expenses such as stamp duties, legal fees and fees of experts and advisers (all of which must be determined on an arm’s length basis) and for no other purpose; and
(c) if borrowings are incurred before the new property is purchased and the manager subsequently becomes aware or ought reasonably to have become aware that the purchase will not take place, the manager must return the monies raised by such borrowings as soon as practicable.
9.4 The aggregate leverage limit is not considered to be breached if due to circumstances beyond the control of the manager the following occurs:
(a) a depreciation in the asset value of the property fund; or
(b) any redemption of units or payments made from the property fund. If the aggregate leverage limit is exceeded as a result of (a) or (b) above, the manager should not incur additional borrowings or enter into further deferred payment arrangements.
9.5 For the purpose of calculating the aggregate leverage to determine compliance with the aggregate leverage limit, if a property fund invests in real estate through shareholdings in unlisted SPVs, the aggregate leverage of all SPVs held by the property fund shall be aggregated on a proportionate basis based on the property fund’s share of each SPV. For the avoidance of doubt, the assets of such SPVs should also be aggregated on a proportionate basis based on the property fund’s share of each SPV.
9.6 An existing property fund with aggregate leverage exceeding 35% of the fund’s deposited property should comply with paragraph 9.2 by 20 April 2006.
9.1 Borrowings15 may be used for investment or redemption purposes. A property fund may mortgage its assets to secure such borrowings.
9.2 The total borrowings and deferred payments16 (together the “aggregate leverage”) of a property fund should not exceed 35% of the fund’s deposited property. The aggregate leverage of a property fund may exceed 35% of the fund’s deposited property (up to a maximum of 60%) only if a credit rating of the property fund from Fitch Inc., Moody’s or Standard and Poor’s is obtained and disclosed to the public. The property fund should continue to maintain and disclose a credit rating so long as its aggregate leverage exceeds 35% of the fund’s deposited property.
9.3 If borrowings are to be used to fund partly or wholly the purchase of a new property, the value of the deposited property used for determining the aggregate leverage may include the value of the new property that is being purchased, provided that:
(a) the borrowings are incurred on the same day as that on which the purchase of the property is completed; OR if the borrowings are incurred before the purchase of the property is completed, those borrowings are kept in a separate bank account that is established and kept by the property fund solely for the purpose of depositing such monies;
(b) the monies raised by such borrowings are utilised solely for the purchase of the property including related expenses such as stamp duties, legal fees and fees of experts and advisers (all of which must be determined on an arm’s length basis) and for no other purpose; and
(c) if borrowings are incurred before the new property is purchased and the manager subsequently becomes aware or ought reasonably to have become aware that the purchase will not take place, the manager must return the monies raised by such borrowings as soon as practicable.
9.4 The aggregate leverage limit is not considered to be breached if due to circumstances beyond the control of the manager the following occurs:
(a) a depreciation in the asset value of the property fund; or
(b) any redemption of units or payments made from the property fund. If the aggregate leverage limit is exceeded as a result of (a) or (b) above, the manager should not incur additional borrowings or enter into further deferred payment arrangements.
9.5 For the purpose of calculating the aggregate leverage to determine compliance with the aggregate leverage limit, if a property fund invests in real estate through shareholdings in unlisted SPVs, the aggregate leverage of all SPVs held by the property fund shall be aggregated on a proportionate basis based on the property fund’s share of each SPV. For the avoidance of doubt, the assets of such SPVs should also be aggregated on a proportionate basis based on the property fund’s share of each SPV.
9.6 An existing property fund with aggregate leverage exceeding 35% of the fund’s deposited property should comply with paragraph 9.2 by 20 April 2006.
Changes to Singapore’s REIT Regulations are Expected to Strengthen the Market [May/June 2008]
Changes to Singapore’s REIT Regulations are Expected to Strengthen the Market [May/June 2008]
By Michele Lerner
Singapore, a country of only 4.4 million people, has one of the largest ports in the world. Additionally, the country is proud to possess a booming real estate market, making it a rising force in the international real estate arena.
One of the driving forces seems to be the stellar returns of 2007, which have whetted investors' appetites for more. In fact, Singapore REITs' total equity market capitalization was $20.8 billion in 2007, as tracked by the FTSE EPRA/NAREIT Global Real Estate Index.
Additionally, new legislation enacted in 2007 by the Monetary Authority of Singapore (MAS) is expected to enhance the Singapore REIT market. Currently, there are 11 listed companies in Singapore, and Daniel Ekins, head of Asia Pacific real estate securities, anticipates additional REIT IPOs in 2008.
Changes Push Continued Quality
The 2007 MAS REIT guidelines brought several changes to the original Singapore REIT rules. The current framework enhances disclosure on short-term yield enhancing arrangements, discourages arrangements that entrench a manager's position, disallows discounts to institutional investors at IPO and increases the minimum threshold for investment in real estate.
"Now REITs must invest at least 75 percent of their assets in income-producing real estate, and no more than 10 percent of a REIT's revenue may be non-rental income," says Peter Mitchell, CEO of the APREA. "The changes also introduce a licensing framework for REIT managers."
Another change affecting the REIT market is that Singapore's Securities Industry Council (SIC) is extending the takeover and merger code. Pua Seck Guan, CEO of CapitaLand Retail Limited (SIN: C31), says the new takeover code amendment creates a favorable environment for one REIT to acquire another.
"In the past, it was difficult for REITs to merge," Pua says. "Now, investors may push for one REIT to take over another if they feel the returns are not strong enough."
These changes are anticipated to have a positive impact on the Singapore REIT market. "It's a good thing that the government has increased the disclosure requirements on financial engineering to investors. In the past, these requirements were not so explicit, but this will ensure the continued quality of our REIT market," Pua says.
Mitchell adds that these regulations should result in a strengthened position for Singapore as a major Asian REIT center.
Crossing Borders
One of the more unusual features of Singapore REITs is their investment in other countries. While most Asian REITs invest only in their country of origin or perhaps one other nation, Singapore REITs currently hold assets in 10 countries, according to APREA.
"As of June 2007, foreign assets comprised approximately 21 percent of the gross asset value of Singapore REITs," Mitchell says. "This was an increase from 14 percent over the previous year. We can expect this percentage to increase as more cross-border REITs are planned and the Sing-apore government continues to encourage these products."
Additionally, Mitchell says that the Singapore government is trying to establish the country as the cross-border REIT center in Asia. "The government has passed a number of tax measures to facilitate this," he says. "These include dividend withholding tax for foreign investors in REITs of only 10 percent, no dividend tax at all for individual investors and no stamp duty payable by the REIT on acquisition of Singapore real estate."
Mitchell points to examples of cross-border REITs, including Mapletree Logistic Trust (SIN: M44U), which holds cross-border assets in Hong Kong, Japan, Malaysia and Singapore. An example of a Singapore-registered REIT with assets dedicated to a certain country is Ascendas India Trust (SIN: A17U), with assets exclusively in India.
Regardless of where their assets are located, most Singapore REITs are sector-specific. "Singapore REITs are classified into sectors, including retail, industrial and hospital REITs," Pua says. Ekins reports that the current mix of Singapore REITs includes 37.3 percent retail assets, 29.5 percent office assets, 21.5 percent industrial real estate, 7.2 percent of hotels and an additional 4.5 percent in other sectors, including hospital, health care and residential assets.
Stellar Performance While Singapore REITs invest in assets in other countries, foreign investors, in turn, are equally interested in investing in Singapore REITs.
"Singapore REITs have been performing well for the past few years and have caught the attention of investors," Pua says. "We've seen a significant increase in American investors because of the intense Asian growth."
Mitchell says that institutional investors have had a healthy appetite for Asian REITs. He expects this to increase in 2008 due to the strong performance and stability of the Singapore REIT market.
In addition to the favorable regulatory atmosphere and the positive returns that increase investor confidence in Singapore REITs, the real estate fundamentals in Singapore are strong. Pua says the country anticipates increases in population that will help the real estate outlook, along with high employment, salary increases and a strong investment banking market.
Additionally, Ekins expects real estate fundamentals to stay strong for the remainder of the year. "With strong GDP numbers expected for 2008 and negative real interest rate, we believe the positive sentiment and pick-up in market activities should resume when there is greater clarity in the U.S. economy. Developer stocks are trading at a discount to NAVs and REITs are also trading below book value," he says.
Mitchell says that both the office and retail sectors in Sing-apore are under-supplied. "If the general apprehension in the stock markets pulls down equity REIT stocks, it is expected that REITs with quality management and quality assets will represent good buying opportunities," he says.
Ekins says that the implementation of government policies to encourage the growth of the REIT sector in Singapore bodes well for the continued strength of the market. "For example, within Asia, Singapore REIT regulations are seen as very investor-friendly," he says. "Singapore has become the preferred listing destination for many companies from countries wherein the REIT regulations have yet to be put in place or wherein the REIT regulations are less advantageous."
By Michele Lerner
Singapore, a country of only 4.4 million people, has one of the largest ports in the world. Additionally, the country is proud to possess a booming real estate market, making it a rising force in the international real estate arena.
One of the driving forces seems to be the stellar returns of 2007, which have whetted investors' appetites for more. In fact, Singapore REITs' total equity market capitalization was $20.8 billion in 2007, as tracked by the FTSE EPRA/NAREIT Global Real Estate Index.
Additionally, new legislation enacted in 2007 by the Monetary Authority of Singapore (MAS) is expected to enhance the Singapore REIT market. Currently, there are 11 listed companies in Singapore, and Daniel Ekins, head of Asia Pacific real estate securities, anticipates additional REIT IPOs in 2008.
Changes Push Continued Quality
The 2007 MAS REIT guidelines brought several changes to the original Singapore REIT rules. The current framework enhances disclosure on short-term yield enhancing arrangements, discourages arrangements that entrench a manager's position, disallows discounts to institutional investors at IPO and increases the minimum threshold for investment in real estate.
"Now REITs must invest at least 75 percent of their assets in income-producing real estate, and no more than 10 percent of a REIT's revenue may be non-rental income," says Peter Mitchell, CEO of the APREA. "The changes also introduce a licensing framework for REIT managers."
Another change affecting the REIT market is that Singapore's Securities Industry Council (SIC) is extending the takeover and merger code. Pua Seck Guan, CEO of CapitaLand Retail Limited (SIN: C31), says the new takeover code amendment creates a favorable environment for one REIT to acquire another.
"In the past, it was difficult for REITs to merge," Pua says. "Now, investors may push for one REIT to take over another if they feel the returns are not strong enough."
These changes are anticipated to have a positive impact on the Singapore REIT market. "It's a good thing that the government has increased the disclosure requirements on financial engineering to investors. In the past, these requirements were not so explicit, but this will ensure the continued quality of our REIT market," Pua says.
Mitchell adds that these regulations should result in a strengthened position for Singapore as a major Asian REIT center.
Crossing Borders
One of the more unusual features of Singapore REITs is their investment in other countries. While most Asian REITs invest only in their country of origin or perhaps one other nation, Singapore REITs currently hold assets in 10 countries, according to APREA.
"As of June 2007, foreign assets comprised approximately 21 percent of the gross asset value of Singapore REITs," Mitchell says. "This was an increase from 14 percent over the previous year. We can expect this percentage to increase as more cross-border REITs are planned and the Sing-apore government continues to encourage these products."
Additionally, Mitchell says that the Singapore government is trying to establish the country as the cross-border REIT center in Asia. "The government has passed a number of tax measures to facilitate this," he says. "These include dividend withholding tax for foreign investors in REITs of only 10 percent, no dividend tax at all for individual investors and no stamp duty payable by the REIT on acquisition of Singapore real estate."
Mitchell points to examples of cross-border REITs, including Mapletree Logistic Trust (SIN: M44U), which holds cross-border assets in Hong Kong, Japan, Malaysia and Singapore. An example of a Singapore-registered REIT with assets dedicated to a certain country is Ascendas India Trust (SIN: A17U), with assets exclusively in India.
Regardless of where their assets are located, most Singapore REITs are sector-specific. "Singapore REITs are classified into sectors, including retail, industrial and hospital REITs," Pua says. Ekins reports that the current mix of Singapore REITs includes 37.3 percent retail assets, 29.5 percent office assets, 21.5 percent industrial real estate, 7.2 percent of hotels and an additional 4.5 percent in other sectors, including hospital, health care and residential assets.
Stellar Performance While Singapore REITs invest in assets in other countries, foreign investors, in turn, are equally interested in investing in Singapore REITs.
"Singapore REITs have been performing well for the past few years and have caught the attention of investors," Pua says. "We've seen a significant increase in American investors because of the intense Asian growth."
Mitchell says that institutional investors have had a healthy appetite for Asian REITs. He expects this to increase in 2008 due to the strong performance and stability of the Singapore REIT market.
In addition to the favorable regulatory atmosphere and the positive returns that increase investor confidence in Singapore REITs, the real estate fundamentals in Singapore are strong. Pua says the country anticipates increases in population that will help the real estate outlook, along with high employment, salary increases and a strong investment banking market.
Additionally, Ekins expects real estate fundamentals to stay strong for the remainder of the year. "With strong GDP numbers expected for 2008 and negative real interest rate, we believe the positive sentiment and pick-up in market activities should resume when there is greater clarity in the U.S. economy. Developer stocks are trading at a discount to NAVs and REITs are also trading below book value," he says.
Mitchell says that both the office and retail sectors in Sing-apore are under-supplied. "If the general apprehension in the stock markets pulls down equity REIT stocks, it is expected that REITs with quality management and quality assets will represent good buying opportunities," he says.
Ekins says that the implementation of government policies to encourage the growth of the REIT sector in Singapore bodes well for the continued strength of the market. "For example, within Asia, Singapore REIT regulations are seen as very investor-friendly," he says. "Singapore has become the preferred listing destination for many companies from countries wherein the REIT regulations have yet to be put in place or wherein the REIT regulations are less advantageous."
Real Estate Funds
Real estate funds are investment vehicles that generally invest in real property, portfolios of actively or non-actively traded equity, fixed income, preferred stock or loan securities of real estate companies, and mortgage-backed securities.
In general, real estate funds invest in return-oriented portfolios that provide income and/or the potential for long-term capital appreciation. A real estate fund may be structured as a limited partnership similar to a private equity fund, a company, or as a REIT. Typical real estate fund
investors are high net worth individuals and institutions, though investors in certain types of real estate funds, such as a REIT, may include retail investors.
Institutional investors have been attracted to real estate investments because the real estate market can offer stable returns that can be comparable to both public equity and debt markets but with a historically low correlation to price changes in those markets. Many professional portfolio managers employ this benefit of real estate investment to diversify an overall investment portfolio by combining several asset classes. As a result, allocations of capital to global real estate investments have grown significantly in the last 15 years, and this trend has also occurred in Asia over the last five years.
Real estate investment has been a rapidly growing asset class, and we expect this trend to continue in light of increased demand for real estate assets in general and the return characteristics of an investment in such assets, which is similar to the return characteristics of an investment in private equity.
There are many types of real estate funds, the common ones are as follows:
REITs
REITs are public-listed investment vehicles that invest in real property. As REITs are listed on a stock exchange, their units are freely tradable. Typically, REIT investments are focused on properties that offer stable rental income such as office buildings, retail shopping centers, residential buildings, hotels and industrial warehouses. REITs are regulated investment vehicles that operate under certain restrictions and provide certain benefits to investors. The main restrictions include a requirement to pay nearly all income to investors through regular dividends, restrictions on carrying out any operating activity and incurring more than a specified level of debt compared to the assets of the REIT, a requirement to invest a majority of the
REIT’s capital in real estate and a requirement that unitholder approval be obtained in order to effect certain transactions such as the acquisition of a significant property. In terms of benefits, REITs allow investors to access real property assets and share the benefits and risks of owning a portfolio of properties which generally distribute income at regular intervals. In addition, REITs are generally tax pass-through investment vehicles or enjoy tax-free status. The manager of a REIT generally provides external management to the REIT, and its duties include sourcing and completing acquisitions, asset enhancements and generally improving the performance of the properties held by the REIT.
A REIT manager typically earns:
(i) base fees paid as a percentage of a REIT’s assets which it manages,
(ii) performance or incentive fees paid as a percentage of a REIT’s net property income, and
(iii) acquisition and divestment fees.
Private real estate funds
Private real estate funds are unlisted funds that generally invest in real property or non-actively traded securities in real estate companies. Investments made by such funds typically include various types of real property ranging from properties that offer stable rental income to properties that provide potential for substantial capital appreciation through development, major refurbishment or asset repositioning. Private real estate funds generally have specified terms with provisions to extend the term under certain circumstances. Qualified investors make a commitment to provide capital to the fund, and this capital is typically called by the fund on an “as needed” basis as investments are identified and returned through distributions upon realization of the underlying investments. Private real estate fund managers typically earn management fees on committed or contributed capital, transaction and monitoring fees as capital is invested and performance fees or carried interest based on the net profits of the fund. Performance fees or carried interest are often subject to a preferred return for investors and a contingent repayment if actual realized performance of thefund at the time of liquidation does not meet the specified requirements.
In general, real estate funds invest in return-oriented portfolios that provide income and/or the potential for long-term capital appreciation. A real estate fund may be structured as a limited partnership similar to a private equity fund, a company, or as a REIT. Typical real estate fund
investors are high net worth individuals and institutions, though investors in certain types of real estate funds, such as a REIT, may include retail investors.
Institutional investors have been attracted to real estate investments because the real estate market can offer stable returns that can be comparable to both public equity and debt markets but with a historically low correlation to price changes in those markets. Many professional portfolio managers employ this benefit of real estate investment to diversify an overall investment portfolio by combining several asset classes. As a result, allocations of capital to global real estate investments have grown significantly in the last 15 years, and this trend has also occurred in Asia over the last five years.
Real estate investment has been a rapidly growing asset class, and we expect this trend to continue in light of increased demand for real estate assets in general and the return characteristics of an investment in such assets, which is similar to the return characteristics of an investment in private equity.
There are many types of real estate funds, the common ones are as follows:
REITs
REITs are public-listed investment vehicles that invest in real property. As REITs are listed on a stock exchange, their units are freely tradable. Typically, REIT investments are focused on properties that offer stable rental income such as office buildings, retail shopping centers, residential buildings, hotels and industrial warehouses. REITs are regulated investment vehicles that operate under certain restrictions and provide certain benefits to investors. The main restrictions include a requirement to pay nearly all income to investors through regular dividends, restrictions on carrying out any operating activity and incurring more than a specified level of debt compared to the assets of the REIT, a requirement to invest a majority of the
REIT’s capital in real estate and a requirement that unitholder approval be obtained in order to effect certain transactions such as the acquisition of a significant property. In terms of benefits, REITs allow investors to access real property assets and share the benefits and risks of owning a portfolio of properties which generally distribute income at regular intervals. In addition, REITs are generally tax pass-through investment vehicles or enjoy tax-free status. The manager of a REIT generally provides external management to the REIT, and its duties include sourcing and completing acquisitions, asset enhancements and generally improving the performance of the properties held by the REIT.
A REIT manager typically earns:
(i) base fees paid as a percentage of a REIT’s assets which it manages,
(ii) performance or incentive fees paid as a percentage of a REIT’s net property income, and
(iii) acquisition and divestment fees.
Private real estate funds
Private real estate funds are unlisted funds that generally invest in real property or non-actively traded securities in real estate companies. Investments made by such funds typically include various types of real property ranging from properties that offer stable rental income to properties that provide potential for substantial capital appreciation through development, major refurbishment or asset repositioning. Private real estate funds generally have specified terms with provisions to extend the term under certain circumstances. Qualified investors make a commitment to provide capital to the fund, and this capital is typically called by the fund on an “as needed” basis as investments are identified and returned through distributions upon realization of the underlying investments. Private real estate fund managers typically earn management fees on committed or contributed capital, transaction and monitoring fees as capital is invested and performance fees or carried interest based on the net profits of the fund. Performance fees or carried interest are often subject to a preferred return for investors and a contingent repayment if actual realized performance of thefund at the time of liquidation does not meet the specified requirements.
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