Reits

Reits: MAS published a consultation paper on a set of proposed changes to the S-REIT market last Oct and Nomura believes the outcome could be announced in May. IPT and alignment between managers and unitholders appear to be the key focus of the proposed changes.

Assessing the S-REITs under Nomura's coverage based on the key proposed changes on 1) performance fee structure, 2) leverage limit, 3) development limit, 4) income support arrangements, and 5) unit buyback mandates, if adopted, key conclusions are:

Potential positive impacts:
1: CapitaMall Trust (CT). FY16-17F DPU could be raised by 2.5-4.6% if a different performance fee structure is adopted. CT could also take up a bigger stake in the redevelopment of an existing property if a higher limit on property development is set.

2: Starhill Global REIT (SGREIT). Nomura thinks SGREIT could also benefit from a higher limit on property development. In addition, proposed changes to unit buyback mandates could also be a positive since the stock is trading at a discount to NAV.

Potential negative impact:
Keppel REIT (KREIT). FY16-17F DPU could be cut by 1.1% if a different performance fee structure is adopted. The proposed changes to leverage limit and income support arrangements could also have a negative impact given the relatively high gearing of 42.4%.