Reits

Reits: Proposed changes may be announced soon
Market watchers expect the proposed changes for REITs- first published in Oct '14, to be announced by the end of Jun, with one citing as early as end-May.

To recap, the set of proposals was aimed to give S-REITs more balance sheet and operational flexibility, improve transparency for unit holders and foster stronger corporate governance.

Key changes include:
1) Single-tier leverage limit of 45% for all REITs (currently 35% cap for unrated REITs and 60% cap for rated REITS)
2) Raising the development limit to 25% (from 10%) of property assets
- additional 15% allowance to be used solely for redevelopment of an existing property that has been held by the REIT for at least three years and which it will continue to hold for another three years after redevelopment.
3) Linking performance fee to “an appropriate metric” to align with the long-term interests of REIT investors
4) Limiting the acquisition/ divestment fee only to recover the managers’ costs
5) Requiring managers to provide more comprehensive disclosures to investors on income support, lease expiry profile, refinancing needs and remuneration policy

Overall, the proposed actions are seen as being positive for REIT investors in the long run, where observers expect yield compression to result over the longer term.

In addition, the impending announcement is expected to remove a major overhang on the Singapore REIT market, and news flow is likely to pick up on any potential acquisitions and project redevelopments.

Maybank-KE is Underweight on S-REITs due to the weak fundamentals, mainly strong supply, weak demand, rising interest costs and stretched valuations.

Top Sells are CapitaLand Mall Trust (TP: $1.87) and Ascendas REIT (TP: $2.27), while the house has Buy ratings for Mapletree Industrial Trust (TP: $1.77), Cache Logistics Trust (TP: $1.33), Starhill Global REIT (TP: $0.93) and Keppel REIT (TP: $1.32).