You will be able to say what MAS rules cover and where to look up the current limits.
When Darren read the circular about his REIT buying a mall from its sponsor, he worried that nothing stood between the sponsor and an inflated price. There was quite a lot standing there, as it turned out. The circular mentioned independent valuations, an opinion from an independent financial adviser, and a vote by unitholders who were not connected to the sponsor. All of it existed because of rules he had never read.
This lesson is a map of those rules: who sets them, what they cover, and where to find the current numbers. The numbers themselves are not in this lesson. Several of them were changed recently, and an old figure is worse than none.
An S-REIT is a collective investment scheme: a pool of money from many investors, managed by someone else, in which investors share the results. Unit trusts and ETFs are collective investment schemes too. In Singapore, these schemes are regulated by MAS under the Securities and Futures Act.
That law gives MAS its powers. The detailed rules for REITs sit in the Code on Collective Investment Schemes, which MAS issues, and in particular in its appendix on property funds. The REIT manager must also hold a licence from MAS for REIT management, which brings its own rules on conduct and competence.
On top of the MAS rules, an S-REIT listed on SGX must follow SGX's listing rules, like any listed company. Some protections come from MAS, some from SGX.
The Code sets a limit on how much an S-REIT may borrow relative to its assets. This is usually called the gearing or aggregate leverage limit. Lesson 5.2, Gearing, interest coverage and the debt profile, shows how to read a REIT's gearing.
The Code also sets a minimum interest coverage ratio, linked to the leverage limit. The interest coverage ratio measures how many times the REIT's earnings cover its interest bill, and the Code defines exactly how it is calculated.
These limits have changed in recent years, and the structure of the rule has changed with them. So the only reliable source is the current version of the Code on the MAS website. When you look them up, write down the figure, the date you checked and the version of the Code it came from. That habit matters more than remembering any one number.
The Code also limits what a REIT can do with its money. Most of its assets must be in income-producing real estate, so it stays a landlord rather than a speculator. There are limits on how much it can put into property development, since building carries more risk than owning finished, leased property. And there are rules on investing in other assets, such as listed property securities or cash. Check the current limits in the property funds appendix.
These rules are part of why S-REITs behave as they do. A REIT cannot suddenly turn into a developer or a trading business, because the Code does not allow it.
The rules Darren cared about most cover deals between the REIT and parties connected to it, such as the sponsor, the manager or their related companies.
Under the Code, deals between the REIT and an interested party must be on normal commercial terms, and property bought from or sold to an interested party needs independent valuations. Under SGX rules, interested person transactions above set thresholds, measured against the REIT's net tangible assets, must be announced, and larger ones need approval from unitholders, with the interested parties not allowed to vote. The thresholds are in SGX's listing rules.
So for Darren's mall purchase, the manager had to get independent valuations, appoint an independent adviser to give an opinion on whether the terms were fair, and put the deal to a vote of unitholders other than the sponsor. The circular contains all of that. These rules do not guarantee a fair price, but they make the price and the reasoning public, and they give unitholders a vote on the largest deals.
For the current borrowing limit and interest coverage rule, use the Code on Collective Investment Schemes on the MAS website. For investment and development limits, use the same appendix. For interested person transaction thresholds, use the SGX listing rules on the SGX website. For a specific REIT, its annual report states its own gearing and interest coverage against the limits.
In the activity you will look up the current gearing limit and minimum interest coverage ratio in the Code and record them with today's date, so the figures you use in module 5 are ones you checked yourself.
Find the current gearing limit and minimum interest coverage ratio in the MAS Code on Collective Investment Schemes and record them with the date checked.
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