Reits to have same takeover and merger rules as listed firms

The rules governing takeovers and mergers of Singapore companies will now apply to property trusts as well.

The Securities Industry Council (SIC), which administers and enforces the Singapore Code on Takeovers and Mergers, said yesterday that it will extend this to real estate investment trusts (Reits).

Reits are now a very popular form of investment and have proliferated here in recent years.

The change means that a party planning to acquire 30 per cent or more of the total units in a Reit must make a general offer for the remaining units - the same requirement as for companies.

In addition, a party that already holds between 30 per cent and 50 per cent of the total units in a Reit, and plans to acquire more than another 1 per cent in a six-month period, must also make a general offer for the trust.

This is to protect the interests of minority investors as well as those of the incumbent parties that hold controlling stakes, the SIC said in a statement.

Without such a framework, ‘a party would be able to accumulate effective control of a Reit without incurring a general offer obligation’, it said.

In such a case, the ‘incumbent controlling unitholders might not be able to extract a control premium from such a party’. The absence of the code also means that a party could take a controlling stake in a Reit and dominate decision-making without giving minority unitholders a chance to get out, market watchers explained.

Having the takeover code apply to Reits therefore offers protection and equal treatment to all the unitholders involved, they said. This change ‘would enhance the reputation of the Reit market in Singapore and add to its growth’, the SIC said.

It added that ‘concerns relating to proper governance and accountability are equally applicable to Reits’ and ‘there is no strong basis’ for not extending the code to such property trusts.

Reit players greeted the change with approval, saying it was a natural progression that provided clarity to the Reit market.

Not having the code apply to Reits was ‘an anomaly and it’s good that it’s been corrected’, said Mr Christopher Tang, chief executive officer of Frasers Centrepoint Trust. ‘A Reit is also a listed entity, and should subscribe to the code of takeovers and mergers which applies to listed companies,’ he told The Straits Times.

The code ‘provides clarity to minority shareholders in the Reit and promotes transparency of process’, Mr Tang added.

Having the code could also make it easier for Reits to merge with or take over one another, said another Reit player who declined to be named. ‘There have been rumours circulating in the market about takeovers of Reits, and this helps to clarify the process involved in doing so.’

To the extent that the code fosters mergers and takeovers of

Reits, it could also boost activity in the Reit market, said Mr Wallace Chu, a DBS Vickers analyst.

He noted that some Reits that are now relatively small in terms of market capitalisation ‘may not meet the investment criteria of potential investors’. But if they are merged with or taken over by bigger Reits, they ‘may make more attractive investment targets for bigger funds’, he said.

Merging Reits could also allow for economies of scale in terms of development resources and leveraging, Mr Chu added.

Another analyst told The Straits Times that Reits that have ‘run out of assets to buy’ may consider taking over another Reit.

‘In a way, you can have one more avenue to grow your portfolio,’ he said.

Source : Straits Times - 9 Jun 2007