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Speech By Mrs Lim Hwee Hua, Senior Minister Of State For Finance And Transport, At The Asian Public Real Estate Association Singapore Reit Summit Navigating The Storm: Responding To The Challenges In Singapore's Reit Market 20 Feb 2009

20 Feb 2009

CEOs and Business Leaders

Ladies and gentlemen, good morning.


I am very pleased to join all of you this morning at this summit organised by the Asian Public Real Estate Association (APREA). This gathering provides an opportunity for the industry to discuss your concerns and suggestions on what can be done to restore confidence and bring investors back during this period of economic uncertainty.

2. Prior to the market decline, the Singapore REIT market was the leading and fastest growing cross-border market in Asia. It is an important component of Singapore's capital market and we must work hard to get back the momentum.

The Impact of the Economic Crisis on S-REITs - Refinancing Concerns

3. We have been fortunate that the Asian real estate markets have been in reasonably good shape. However, the financial turmoil, and in particular the freezing of credit markets around the world, has raised concerns of refinancing risk for many companies, including REITs, which have been trading significantly below their net asset value. The challenge that REITs are currently facing can be characterised as a 3-R Challenge - one that encompasses Refinancing, Recapitalisation and Revaluation issues.

Measures to Facilitate Refinancing or Recapitalization

4. The REIT market is one of the key sectors in Singapore's equity market. As such, MAS and other Government agencies, and the Singapore Exchange (SGX) have been actively seeking feedback and reviewing suggestions from market participants on the challenges they face.

5. In this regard, SGX has worked with MAS to introduce measures to facilitate secondary fund raising by listed issuers, including REITs. These measures, which were announced by SGX last December and just this January, are targeted at shortening the exposure period for listed issuers undertaking rights issues. They include permitting issuers to put in place sub-underwriting arrangements with their major shareholders without the need to hold an extraordinary general meeting (EGM) to obtain specific shareholders' approval, subject to certain safeguards to protect the interests of minority shareholders.

New Measures Introduced by SGX

6. SGX has also announced further temporary measures to facilitate listed issuers' fund raising efforts. REITs can also make use of these measures, which include: (i) issuing up to 100% of their issued share capital via a pro-rata renounceable rights issue, without the need to hold an EGM to obtain unitholders' approval, and (ii) undertaking placements of new shares priced at discounts of up to 20%, with unitholders' approval. These measures will be in force until 31 Dec 2010, and SGX will study their effectiveness in the interim.

7. Taken together, these measures should help listed issuers raise funds in a timelier manner and give greater assurance of a successful fund raising exercise. 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.

8. This January, MAS also released a circular to clarify that an increase in the aggregate leverage ratio of REITs, resulting from a decline in property values, will not amount to a breach of leverage limits in the Property Fund Guidelines. The circular also clarified that the refinancing of existing debt will not be construed as incurring additional borrowings. Hence, a REIT may arrange for refinancing ahead of the maturity of existing loans without the new financing being counted towards the leverage limit, this is on the basis that the funds are earmarked for the purpose of repaying maturing facilities.

9. Even as we fine-tune our rules to facilitate recapitalization and financing, it is important that we do not lose sight of the need to uphold corporate governance and shareholders' rights which are the foundation for a vibrant and trusted REIT market. We need to embrace a calibrated approach to responding to the challenges that REITs and other listed companies are facing in the current market. To this end, I am pleased that MAS will be consulting REIT managers on the possibility of introducing a requirement for Annual General Meetings (AGMs) to be held. This is in line with the practices for other listed vehicles and would ensure better corporate governance of REITs.

Clarification of Policy Stance on Payout Ratio

10. I would also like to take this opportunity to clarify our position on the REITs' dividend payout ratio. I understand that many are concerned whether the payout ratio for REITs to qualify for tax transparency treatment would be lowered to help REITs conserve cash. MOF and MAS have deliberated this issue and have decided that the minimum payout ratio would 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.

11. In addition, while we appreciate the re-financing 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. I understand that a few S-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.

Measures Introduced in Budget 2009 to Stimulate Businesses

12. With the credit crunch, many businesses across various sectors are faced with similar refinancing difficulties that S-REITs are facing. To help Singapore cope with the downturn, the Government has introduced a decisive $20.5 billion Resilience Package which includes numerous measures to help business. These include $5.8 billion worth of measures to stimulate bank lending such as the Special Risk-Sharing Initiative (SRI). The SRI was introduced to help viable companies get access to credit to sustain their operations and keep jobs for Singaporeans. The Government also introduced a $5.1 billion Jobs Credits scheme to help cover part of the cost of employing Singaporeans.

13. These measures are over and above the $2.6 billion worth of measures introduced to enhance business cashflow and competitiveness, such as the 1% cut in the corporate income tax rate to 17% with effect from the Year of Assessment 2010 and a 40% property tax rebate in 2009 for commercial and industrial properties and. It is heartening to note that some REITs have since expressed their intention to pass on the savings from the property tax rebate to tenants to help them cope in this economic crisis.


14. For Singapore to remain as the premier hub for Asian REITs, it is important to ensure that the REIT market here remains guided by the integrity of REIT managers, supported by robust, yet pro-business regulations and active, informed stakeholders.

15. All of us have a part to play in building upon the initial success of the S-REIT market and helping to sustain it. To this end, Government agencies are committed to engaging industry players for feedback and fine-tuning our rules and frameworks where necessary.

16. I applaud APREA for organizing this Singapore REIT Summit. Since its inception in 2005, the Association has represented the interests of the publicly traded real estate sector in the Asia Pacific region and has been very active in many areas which benefit the entire real estate community, not just the listed sector. I also commend the Association for establishing the APREA institute in Singapore, a special purpose education arm that c onducts programmes in real estate investment finance for practising professionals at mid-management level. Running programmes to improve this sector is especially important during this economic downturn, as it will give the industry the necessary skills to emerge stronger from the recession. Finally, I wish all of you a fruitful discussion. Thank you.