SC introduces new measures to boost growth of REITs

Kuala Lumpur , 21 August 2008

The Securities Commission (SC) today issued the revised Guidelines on Real Estate Investment Trusts (REITs Guidelines) to enhance the attractiveness of Bursa Malaysia as a destination for REIT listings and promote a vibrant and competitive REIT industry domestically and regionally.

The Guidelines , which are in line with internationally accepted standards and practices, address several practical issues affecting industry players in the management and promotion of REITs as an attractive investment vehicle. They also include measures to promote higher standards of conduct by market intermediaries.

Greater flexibility for REIT Managers

Following the measures announced in Budget 2008 to encourage foreign REIT management companies to set up operations in Malaysia and list their REITs on Bursa Malaysia, the REITs Guidelines now allow up to 70 percent foreign shareholding in REIT management companies, an increase from 49 percent since 2005.

In addition, the revised Guidelines provide greater flexibilities for REIT Managers to manage their REITs’ portfolio mix. For example, REIT Managers will have more freedom to invest in foreign real estates. It also allows a portion of a REIT’s portfolio to consist of real estates that it does not wholly-own or have a majority ownership.

REIT Managers are now able to raise funds faster for acquisitions or capital expenditure purposes. The guidelines were also revised to allow REIT Managers to seek a general mandate from unit holders for issuance of units up to 20 percent of its fund size. Previously, the issuance of any number of new units required REIT Managers to hold meetings to seek unit holders' specific approval.

Additionally, the SC’s prior approval on real estate valuation is now only required where acquisition of a real estate is financed, or re-financed within one year, through the issuance of new units. In all other circumstances, the SC will conduct a post-review of the valuations to ensure that they are reasonable and well-supported.

Higher standards of market conduct

The SC has also taken measures to strengthen investor protection by promoting higher standards of conduct by market intermediaries.

This is reflected in the new requirement directing REIT Managers to appoint a designated person responsible for compliance. This ensures securities laws, land laws, guidelines and rules are complied with at all times, and also streamline similar requirement between REIT Managers and all other capital market intermediaries.

To further safeguard investor interest, REITs will not be allowed to acquire non-income generating real estates such as vacant land, and may only acquire property that is under construction or uncompleted real estates up to 10 percent of its total asset value. Moreover, rules governing related party transactions have been introduced to regulate such transactions and trustees now have a greater role to play in related party transactions.

Additionally, the revised REITs Guidelines require principal advisers to comply with the Guidelines on Principal Advisers for Corporate Proposals. These specify who can act as principal advisers for the submission of corporate proposals to the SC, in addition to the required competency standards for principal advisers when dealing with corporate proposals involving initial public offers of REITs on Bursa Malaysia.

The REITs Guidelines also make reference to the need to comply with the Guidelines on Due Diligence Conduct for Corporate Proposals which sets out the SC’s expectations on issuers, advisers and experts in their conduct of due diligence to ensure that investors can make informed investment decisions based on sound and accurate information.

The revised REITs guidelines, which come into effect on 21 August 2008, are available here.


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