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What Does The Latest Changes To REIT Regulations Mean For ARA Asset Management Ltd?

Credit: Ethan Lofton

Last October, the Monetary Authority of Singapore (MAS) first started indicating that it’s looking to make changes to the regulations governing real estate investment trusts (REITs).

One of the changes in particular dealt with the possibility that the MAS may control the fees that REIT managers are getting from the REITs. And as a company that specialises in managing REITs and private real estate funds, ARA Asset Management Ltd (SGX: D1R) was feeling the heat as any changes to the fee structure for REIT managers will have impacts on its revenue.

But yesterday evening, most worries regarding the matter were dispelled when the MAS announced the list of changes it’d be making to the regulations after a period of consultation with the public.

In terms of the structure and types of fees that REIT managers charge REITs, there will be no intervention by the MAS. But, the MAS would require the REIT managers to “disclose the justification for each type of fees charged.” REIT Managers “will also have to explain the methodology for computing performance fees, and justify how this methodology takes into account unitholders’ long-term interests.”

In other words, REIT Managers are still given the freedom to charge the fees and set the structure as they deem fit, so long as they’re able to justify why they’re doing so and that unitholders’ long-term interests are taken into consideration.

With that, REIT managers like ARA Asset Management will likely not see any large negative impacts to their revenue streams. But what ARA Asset Management needs to do is to improve the disclosures to unitholders on the fees that it charges the REITs in its portfolio.

Foolish Summary

The initial concern that the new REIT regulations might seriously disrupt the business model of REIT managers has not come to pass and it is likely that a company like ARA Asset Management will still be able to generate good return on capital for its own shareholders. The changes to how the fees should be disclosed have to be implemented by a REIT’s first Annual General Meeting of the financial year ending on or after 31 December 2015.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Stanley Lim own ARA Asset Management Ltd.