You will make a one-page structure map of one S-REIT that includes its fees and related parties.
Darren holds units in an S-REIT, and over the years his notes on it ended up in six places: one prospectus, three annual reports and two circulars. Nothing he needed was missing from those documents. The problem came with each new announcement from the REIT, when he had to go back through all six to remember who the trustee was or how the performance fee was worked out. He wanted a single page that answered the basic questions so he didn't have to open a PDF.
You can build that page for one S-REIT in about twenty-five minutes. It records the four parties, the size of the sponsor's stake, each fee with its basis, amount and payment method, any right of first refusal the sponsor has given, and the biggest related-party deals over the last two years. Every line on it should be something you can check in the annual report. You'll come back to it whenever the REIT announces a deal, and module 7 relies on it.
Two documents cover everything: the most recent annual report and a summary of the trust deed. Download the annual report from SGXNet or from the investor relations section of the REIT's own website. The trust deed summary is usually inside the annual report, either in the corporate governance section or among the notes to the financial statements. For a REIT that listed in recent years, the prospectus carries a longer version of that summary and is the better source.
If you drew this REIT's structure in Lesson 4.1, "Sponsor, manager and trustee: who does what", begin with that drawing. Head the page with the REIT's name and the date of the annual report you're working from. Then fill it in three passes: parties first, fees second, deals last.
The four parties are the sponsor, the manager, the trustee and the property manager. Copy each one's full legal name from the corporate information page of the annual report. Companies in the same group often have names that differ by only a word or two, and the full name is what tells them apart.
Beside the sponsor, record its holding as a percentage of the units in issue. That figure comes from the section listing substantial unitholders. Where the sponsor's units are held through more than one company, add the holdings up and write the total. Also write down whether the sponsor owns the manager, and the size of that share if it does.
For fees, turn to the fee section and list every fee paid to the manager and to the property manager. Each fee needs three entries: the basis the report gives for it, the amount paid last year, and whether it was paid in cash or in units. Lesson 4.3, "How the manager is paid, and why it matters to you", showed how to read these; use that reading to put a mark against any fee that rises as the REIT gets bigger regardless of what happens to DPU.
A right of first refusal (ROFR) is a right the sponsor grants to the REIT. If the sponsor has granted one, write down which property types it covers and when it expires, if the report gives a date.
Related-party deals are transactions with the sponsor, the manager or companies related to them: acquisitions, divestments, leases to sponsor companies and large service contracts. They are reported in the interested person transactions section, which usually sits near the back of the annual report, or in a related-party transactions note in the financial statements. Lesson 4.4, "How MAS regulates S-REITs", covered how these REITs are regulated. The rules on which of these deals must be announced, disclosed or put to a unitholder vote, though, are in Chapter 9 of the SGX Listing Manual. When a deal does go to a vote, the interested person and its associates must not vote on it, and they cannot act as proxies unless they are given specific instructions on how to vote. For the current thresholds that decide when a deal must be announced or put to a vote, check Chapter 9 in the SGX Rulebook.
Pick out the largest of these deals from the past two years. Record the value of each one and whether unitholders voted on it. The latest annual report gives you one year; take the other year from the previous annual report.
Once the three sections are filled in, put the annual report page number next to every figure. Finish by confirming that everything fits on one page and that another person could check each line against the report.
Picture a REIT that holds four suburban malls (an invented example, and every figure in it is invented). The sponsor owns 28% of units in issue through two subsidiaries, and it owns 100% of the manager. A bank's trust arm acts as trustee and has no link to the sponsor. The property manager is one of the sponsor's subsidiaries.
The fees on its map are:
Base fee: deposited property is the basis, S$11.5 million last year, with half paid in units. Performance fee: net property income is the basis, S$6.2 million, paid in cash. Acquisition fee: the price of each purchase is the basis, S$4.0 million last year from one acquisition. Property management fees: S$5.1 million.
The base, performance and acquisition fees each rise with the REIT's size, and none of the three is tied to DPU, so each gets a mark. The sponsor's ROFR applies to completed retail properties in Singapore and runs for as long as the sponsor owns the manager.
In the deals section, the REIT bought one of its malls from the sponsor eighteen months ago for S$400 million, and unitholders other than the sponsor approved that purchase. Two tenants owned by the sponsor hold leases that account for a small share of rent.
Read together, the page gives you three conclusions before any new acquisition is announced. The sponsor is on both sides of growth, because it sold a mall to the REIT and also owns the manager that is paid fees on purchases. The fees reward size. The most recent large purchase came from the sponsor. Keep these three points in mind for when the next acquisition is announced.
Now choose your own REIT and fill in the parties, the fees and the deals, in that order. Store the finished map where you can find it easily, because module 7 asks you to read an equity raising against exactly these facts.
Hand in a one-page structure map of one S-REIT showing its parties, fees, sponsor stake and related-party deals.
Junxiong-WFG Organisation is an authorised representative of AIA Financial Advisers Private Limited (Reg. No. 201715016G).