REIT managers say SC's REIT guideline amendments will drive market's growth

KUALA LUMPUR (April 24): The liberalisation in the permissible list of activities provides alternative growth opportunities to Malaysian Real Estate Investment Trusts (M-REITs) in the areas of acquiring vacant land to undertake property development activities, acquisition of assets with provision of income support and investments through private leases, said the Malaysian REIT Managers Association (MRMA).

It noted that under the current property market environment, acquisitions by M-REITs are often hindered by pricing expectation gaps between the acquirer and vendor.

"It is even harder for REITs to strike a deal in view of the obligations to ensure the acquisition is yield accretive and does not lead to dilution in distribution per unit (DPU) to unit holders," it said in a statement today.

"(Thus,) we applaud the Securities Commission Malaysia's move to further liberalise the M-REITs market. Flexibility accorded to the REITs in acquiring vacant land to undertake property development activities will provide an added catalyst in driving the growth of the M-REITs market." said MRMA chairman Datuk Jeffrey Ng (pictured) in a statement today.

"With the liberalisation, unit holders' interest is protected through enhanced risk management and corporate governance (CG) practices. For instance, the leverage level is now capped at 50% of total asset value without the option to increase leverage level via unit holders' approval is a balancing act for liberalisation in permissible activities granted by the regulators," he added.

To reinforce strong CG practices, M-REITs are required to establish an audit committee for the REIT manager and to incorporate a statement of CG and internal control in the annual report of M-REITs, similar to other listed corporations.

Ng said majority of the M-REITs have adopted these best practices on a voluntary basis prior to the enforcement and thus, the association foresees no major concerns arising from these new requirements.

"The association is also supportive of the additional CG measure to protect investors' interest such as the provision for the removal of REIT manager through an ordinary resolution, in line with Australia, Singapore and Hong Kong. In a highly regulated M-REITs regime, this provides an avenue for removal of non-performing REIT managers," he said.

Under the new regime, M-REITs are also now allowed to undertake unit buy-back activities with the condition that all units bought back must be immediately cancelled.

To this, Ng said while immediate cancellation will boost DPU, MRMA urges the regulators to allow more options for REIT to keep as treasury units, similar to listed corporations. — theedgemarkets.com

For more stories, download EdgeProp.my pullout here for free.