Government’s stand is to preserve the stable, high-payout characteristics of the trusts, says minister
IT’S official. The authorities will not be lowering the minimum payout ratio that real estate investment trusts (Reits) must meet to qualify for tax transparency treatment.
Spelling out the government’s stand, Senior Minister of State for Finance and Transport Lim Hwee Hua said at a Reits seminar yesterday: ‘The key characteristics of Reits as a stable, high-payout, pass-through vehicle are important considerations for investors, and hence, must be preserved.’
‘Ministry of Finance and Monetary Authority of Singapore have deliberated this issue and have decided that the minimum payout ratio would not be changed,’ she added.
Yesterday’s official pronouncement on the topic confirms earlier BT reports.
Under current guidelines, Reits have to distribute to unitholders at least 90 per cent of their distributable income, in order to enjoy tax transparency, which means exemption from paying corporate tax at the Reit/vehicle, on the portion of income they distribute.
‘While we appreciate the refinancing difficulties faced by Reits, there are, at present, no strong grounds to justify a special tax treatment for Reits that is not made available to other entities,’ Mrs Lim said at a seminar organised by the Asian Public Real Estate Association (Aprea).
She noted that a few Singapore Reits have already managed to secure refinancing either through bank loans, loans from sponsors or recapitalisation, albeit at a higher cost. ‘It is unrealistic for S-Reits to expect to have continued access to cheap and easy credit during this recession,’ Mrs Lim commented.
BT reported last month that some Reit managers had urged the government to trim the minimum payout to unitholders to as low as 50 per cent of distributable income, while still allowing Reits to enjoy tax transparency.
The proposals were meant to help Reits - especially smaller ones - conserve cash. But they sparked concerns that Reit investors, especially institutional players like funds who count on the certainty of a regulated minimum distribution from their investments in the S-Reit sector, may pull out from this market if this rudimentary attraction of S-Reits disappears.
The issue of fairness also surfaced. It was asked why Reits enjoy special treatment when many other listed companies also return a chunk of their profits to shareholders but still have to pay corporate taxes.
Mapletree Logistics Trust’s deputy CEO Richard Lai welcomed yesterday’s official pronouncement. ‘We have never agreed with any move to reduce the distribution payout ratio because it will destroy investors’ confidence and consequently tarnish the S-Reit market. S-Reit is a special play for investors and reducing the payout ratio would definitely bring into question the very existence of Reits. Why do we need Reits if they don’t have the discipline to maintain high payout ratios?’
However, Securities Investors Association of Singapore president and CEO David Gerald said: ‘The 90 per cent rule means that a Reit is always geared. If there is a reserve, the Reit can face economic downturn or financial crisis confidently as banks may not be willing to lend. For this reason, I am not in favour of the authorities insisting that the 90 per cent level be maintained as that may affect the liquidity of a Reit, especially in these bad times.’
Mapletree’s Mr Lai suggests that to conserve cash, Reits could give investors the option to receive their distributions in the form of new units issued, instead of cash. ‘That could be dilutive but unitholders who support you would understand, whereas if you seek to reduce the payout ratio, you’d be destroying the very nature of having Reits,’ he added.
In her speech, Mrs Lim said: ‘With the credit crunch, many businesses across various sectors are faced with similar refinancing difficulties that S-Reits are facing.’ She noted that the government has introduced measures in last month’s Budget to stimulate businesses, including $5.8 billion of measures to stimulate bank lending such as the Special Risk-Sharing Initiative.
In addition, S-Reits can also tap measures announced recently by Singapore Exchange to facilitate listed issuers’ secondary fund-raising efforts. ‘SGX will continue to explore other initiatives to facilitate secondary fund raising, including the Australian accelerated rights issue structure, which requires a more detailed study,’ Mrs Lim added.
No comments:
Post a Comment