Source : Straits Times - 21 Feb 2009
REAL estate investment trusts (Reits) should not expect any additional help from the Government to get through the credit crunch. They will have to adjust like other listed firms.
That was the message yesterday from the Senior Minister of State for Finance and Transport, Mrs Lim Hwee Hua, who added that the days of easy credit and low financing are over.
Reits have been trading significantly below their net asset value. They are having trouble refinancing because of the tight credit market, and some of the smaller ones recently asked the Government to lower the 90 per cent minimum payout ratio to unit holders, which is needed to qualify for tax transparency treatment.
But the Government is resisting the calls. Mrs Lim told a Reit summit yesterday that the Ministry of Finance and the Monetary Authority of Singapore (MAS) have ‘deliberated this issue’ and decided that the minimum payout ratio will not be changed.
‘The key characteristics of Reits as a stable, high-payout, pass-through vehicle are important considerations for investors and, hence, must be preserved,’ said Mrs Lim.
She added that there are no strong grounds to justify a special tax treatment for Reits that is not made available to other entities.
‘It is unrealistic for (Singapore) Reits to expect to have continued access to cheap and easy credit during this recession,’ she said.
Many businesses across various sectors face similar refinancing difficulties as Reits, said Mrs Lim, who spoke at the Singapore Reit Summit organised by the Asian Public Real Estate Association (Aprea).
Earlier this month, Aprea asked the Government to help Reits refinance $4 billion of debt. They stressed that Reits are what will attract investors to Singapore as it moves out of this recession.
Mrs Lim said the Reit market is one of the key sectors in Singapore’s equity market, and MAS, other government agencies and the Singapore Exchange (SGX) have been actively seeking feedback and reviewing suggestions on the challenges it faces.
She added that measures to facilitate secondary fund-raising by listed issuers, including Reits, have been introduced.
On Thursday, the SGX also announced further temporary measures to help listed firms raise funds. It said it will continue to explore other initiatives to ease secondary fund-raising, including the Australian accelerated rights issue structure, which requires more detailed study.
Yesterday, Mrs Lim also mentioned the possibility of requiring Reits to hold annual general meetings to ensure better corporate governance.
DMG & Partners securities’ investment analyst Brandon Lee told The Straits Times: ‘As long as the credit market remains distressed, the smaller Reits will certainly find it harder to refinance or roll over their outstanding debt, given that banks are currently more inclined towards extending credit to those with strong sponsors, proven track records and quality assets.’
Saizen Reit announced last week that it will not give any payout for the second quarter. It said it wants to conserve cash due to the uncertain credit environment and the maturity schedule of its loans.
But despite calls for concessions, some Reits said reducing the payout ratio should not be an option, particularly if Singapore is to remain the leading hub for Asian Reits.
‘We strongly oppose any moves to make short-term, knee-jerk changes to our Reit regulations which will destroy investors’ confidence and consequently the S-Reit market,’ said the chief executive of Mapletree Logistics Trust Management, Mr Chua Tiow Chye.
‘If managers are allowed discretionary powers to decide how much to pay out, the Reit will be no different from a normal developer company.’
A CapitaLand spokesman agreed: ‘Reducing the payout will fundamentally alter the characteristics of the Reit as a high-payout, tax-transparent investment vehicle.’
In the short term, however, the Reit sector could see some consolidation.
This is ‘not unlikely’ as asset values are looking increasingly cheap, said DMG’s Mr Lee. ‘In the worst-case scenario, asset divestments at distressed prices could end up as the last resort for these Reits to pare down their debt levels.’
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