You will be able to say what MAS rules cover and where to find the current limits.
Darren owns units in an S-REIT. A circular arrives saying the REIT plans to buy a mall from its sponsor, and he wonders what stops the sponsor from setting an inflated price.
Further into the circular he finds three safeguards: independent valuations, an opinion from an independent financial adviser, and a vote limited to unitholders with no connection to the sponsor. Each one is required by rules Darren had never read, and those rules come from two bodies, MAS and SGX. Once you know which body covers which rule, you know where to go when you need to check something.
A collective investment scheme is a pool of money from many investors, managed by someone else, where the investors share the results. S-REITs are in this category, and so are unit trusts and ETFs. MAS regulates collective investment schemes in Singapore under the Securities and Futures Act, the law that gives MAS its powers.
MAS issues the Code on Collective Investment Schemes, and the detailed REIT rules are in that Code. For a REIT investor, the most useful part is the appendix on property funds. Separately, a REIT manager needs an MAS licence for REIT management, and the licence carries its own rules on conduct and competence.
Listing on SGX adds a second set of rules. Under Chapter 4 of SGX's Mainboard Rules, which covers investment funds, a listed S-REIT has to comply with all the listing rules that apply to equity securities, with necessary adaptations. Check the SGX rulebook for how these rules apply to a REIT. Some of your protections as a unitholder come from MAS and some come from SGX.
The Code caps how much an S-REIT can borrow, measured against its assets. That cap is the gearing limit, which you will also see called the aggregate leverage limit. The Code also requires a minimum interest coverage ratio, which is the number of times the REIT's earnings cover its interest bill. The Code defines exactly how the ratio is calculated, and the required minimum is tied to the leverage limit.
These notes give no figures for either limit, on purpose. In recent years the gearing limit, the interest coverage requirement and the structure of the rule have all changed, several of them recently, and an out-of-date figure would mislead you more than having no figure. The only reliable source is the current version of the Code on the MAS website.
The Code also restricts what a REIT can hold. Most of its assets have to be in income-producing real estate, so the REIT stays a landlord and does not become a speculator. Spending on property development is capped as well, because building carries more risk than owning property that is finished and leased. Further rules cover other assets, such as listed property securities or cash. The current investment limits are in the property funds appendix.
These restrictions partly explain how S-REITs behave. The Code doesn't allow a REIT to switch suddenly into property development or a trading business.
The sponsor, the manager, and any company related to either of them count as related parties. MAS and SGX both regulate deals with them. Of everything in the Code and the listing rules, these were the rules Darren cared about most.
The MAS Code requires two things. Any deal between the REIT and an interested party has to be on normal commercial terms. Any property the REIT buys from or sells to an interested party needs independent valuations.
SGX's listing rules cover interested person transactions, which are deals between the REIT and connected parties. Once one of these deals passes set thresholds, the REIT has to announce it. The thresholds are measured against the REIT's net tangible assets and are set out in the listing rules. Larger interested person transactions also need unitholder approval, and the interested parties can't vote.
Because of these rules, the manager had to take the following steps for Darren's mall purchase, in this order:
obtain independent valuations appoint an independent adviser to give an opinion on whether the terms were fair hold a vote of unitholders other than the sponsor disclose all of it in a circular
All of it is in the circular Darren read. The rules don't guarantee a fair price. What they do is make the price and the reasoning behind it public, and give unitholders a vote on the largest deals.
Borrowing limits, interest coverage rules, and investment and development limits are all in the property funds appendix of the current Code on Collective Investment Schemes, on the MAS website. Thresholds for interested person transactions are somewhere else: the SGX listing rules, on the SGX website.
Whenever you look up a limit, note three things: the figure, the date you checked it, and the version of the Code or rules it came from. Building the habit of keeping this record matters more than remembering any one number. The number may change, and a dated note shows you how current yours is.
For a particular REIT's position, check its annual report. The report gives the REIT's own gearing and interest coverage against the limits. Lesson 5.2, "Gearing, interest coverage and the debt profile", shows you how to read a REIT's gearing.
For the activity, look up the current gearing limit and minimum interest coverage ratio in the Code and record each with today's date and the version of the Code it came from. You will use these figures in module 5, so they should be ones you checked yourself.
Look up the current gearing limit and minimum interest coverage ratio in the MAS Code on Collective Investment Schemes. Write them down with the date you checked.
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