Resulting from a joint review of the then-existing collective investment scheme (CIS) (such as real estate investment trusts (REITs)) framework by Bursa Malaysia Securities Berhad (Bursa Securities) and the Securities Commission Malaysia (SC), Bursa Securities had, on 2 April 2018, announced the amendments to the Main Market Listing Requirements (Listing Requirements) in relation to CIS.
The amendments to the Listing Requirements are intended to complement the latest changes made to the Capital Markets and Services Act 2007 (CMSA) and the two (2) new guidelines pertaining to REITs issued by the SC (New REIT Guidelines) which took effect on 9 April 2018. All CIS-related amendments under the Listing Requirements took effect on 9 April 2018, while amendments relating to the areas of disclosure and corporate governance have been allocated a longer grace period of up to December 2018.
Under the New REIT Guidelines, REITs are now accorded more flexibility to stimulate growth and competitiveness in the maturing REIT market. Some noteworthy enhancements introduced include allowing REITs to undertake property development activities (including acquisition of vacant land for such purpose) and investing in real estate through a lease arrangement..
(1) BURSA SECURITIES - THE NEW APPROVING AUTHORITY
Previously, the approval of the SC was required for issuance of securities by a listed REIT. In light of the latest changes made to the CMSA and the Listing Requirements, SC has officially passed the baton to Bursa Securities to approve the issuance of new securities such as placement, bonus issue, rights issue or issuance of new securities as consideration for an acquisition by a listed REIT. However, SC’s approval would still be required for issuance of debt securities.
(2) ENHANCED CORPORATE GOVERNANCE
As an effort to promulgate corporate governance standards, the management company of a REIT must now establish an audit committee and incorporate a corporate governance statement and the state of risk management and internal control in its annual report. These new requirements are unlikely to have any major impact as most REITs have observed these practices under the current regime.
Although not prescribed under the Listing Requirements, in an effort to further protect unitholders’ interest, the New REIT Guidelines has now introduced a new measure for the removal of a management company by way of an ordinary resolution at a general meeting. This is in line with the standards of REITs in other territories such as Hong Kong, Australia, and Singapore.
(3) CONTINUING DISCLOSURE REQUIREMENTS TO COMPLEMENT THE VARIOUS NEW ENHANCEMENT MEASURES ACCORDED TO REITs UNDER THE NEW REIT GUIDELINES
With the shift from the SC to Bursa Securities, the latest Listing Requirements have been enhanced to take into account the post-listing obligations of REITs as a result of the relaxation of permissible activities pursuant to the New REIT Guidelines including:
- Property development activities
As a consequence of the liberalisation accorded to REIT to undertake property development activities (including acquisition of vacant land for such purpose), the Listing Requirements now require details of such activities to be disclosed via immediate announcement (where the total property development costs is 5% or more of the REIT’s total asset value), in the quarterly report and annual report. The enhancement to the minimum contents of quarterly and annual reports for REITs marks a departure from the previous regime where REITs were only required to comply with the requirements and minimum contents prescribed under the previous Guidelines on REIT.
- Lease arrangement
As REITs may now acquire real estate through lease arrangements, a REIT wishing to undertake such arrangement must ensure compliance with Chapter 10 of the Listing Requirements as if the entry into the lease arrangement is a ‘transaction’ as defined therein. Consequently, the announcement, circular and annual report to unitholders must also include additional information on the lease arrangement.
- Income support arrangement
Where a REIT acquires real estate with income support arrangement (a situation where a REIT’s sponsor (usually the major shareholder of the REIT) or property vendor agrees to provide a minimum rental income for a specific period in order for the REIT to achieve its desired rental income), the Listing Requirements have also prescribed additional disclosure requirements in the announcement, circular and annual report to unitholders.
- Unit buy-back
A REIT may now undertake buy-back of its own units subject to compliance with among others the requirements under the Listing Requirements which include obtaining its unitholders’ approval, satisfying the solvency test under the Companies Act, 2016, and disclosure via announcements pertaining to the buy-back or cancellation of units.
(4) ADDITIONAL DISCLOSURE REQUIREMENTS
- Additional events which trigger immediate announcement
The Listing Requirements have also prescribed additional events pertaining to REITs which trigger immediate announcement to Bursa Securities such as occurrence of the following:
- any breach of the limits or restrictions imposed on the REITs under the New REIT Guidelines;
- any default in the income support arrangement involving the REIT; or
- any property development activities where the total property development costs is 5% or more of the REIT’s total asset value.
CONCLUSION AND REMARKS
With the latest amendments to the Listing Requirements, Bursa Securities has prepared itself to be at the front line when it comes to regulating capital raising activities by REITs. Within the liberalisation, the new amendments at the same time promise greater transparency and better protection of the interests of unitholders to a certain extent. In view of the additional alternative growth measures being accorded to REITs under the New REIT Guidelines, Bursa Malaysia has tightened its grip on the areas of disclosure and corporate governance in the Listing Requirements as a means to strengthen unitholders’ protection and encourage greater operational efficiency. Going forward, listed REITs in Malaysia need to be mindful of the changes brought about by the amendments to the Listing Requirements to avoid scrutiny by Bursa Securities on any issues of non-compliance.