Guide: Rules of REIT

Investor Monkey - Book of Investment

There are some rules stipulated in the Code of Collective Investment Scheme (CIS) that REIT has to adhere to. Some of the rules that are more relevant to investors include:

  • Maximum Gearing
    The maximum amount of loan that the REIT is able to borrow cannot exceed 35% of its total asset. Exceptions can be made if the REIT obtains and publicly disclose a credit rating from recognized rating agencies like Standards & Poor’s (S&P), Moody’s and Fitch Group. Only with the credit rating, the REIT can then increase the total loan to 60% of its assets from 35%.If the loan leverage exceeds the 35% mark due to lowering of the total valuation, further borrowing has stop.
  • Annual Valuation
    An annual valuation to the REIT’s asset has to be performed at least once a year. Because of the fluctuation in the property valuation, both the balance sheet and the profit and loss statement can be changed dramatically.
  • Investments Restriction
    REITs are also regulated by CIS on the types of investments they can make, which includes:

    1. Real estate within and outside Singapore
    2. Real estate related assets
    3. Listed or unlisted debt securities and listed shares of non-property corporations
    4. Government securities
    5. Cash and cash equivalents
    6. A minimum of 75% of their asset should be invested in income producing real estate
    7. REIT should not undertake property developments (unless it intends to hold the developed property upon completion. Total contract value should not exceed 10% of the REIT’s total asset)
    8. REIT should not invest in vacant land or mortgages (except for mortgage-backed securities
    9. Not more than 10% of its income should come from sources other than (i) rental payments from tenants or (ii) interests, dividends and other similar payments from permissible investments
  • Tax Benefits & Distribution of Taxable Income
    In order to enjoy the tax transparency treatment where the tax is payable only at the investor’s level and not by the REIT, the REIT is required to distribute at least 90% of its taxable income.Do note that the distribution percentage is not uniform across all countries. Below are the distribution percentage for some of the countries:

    Country Rate
    USA 90%
    Australia 100%
    Japan 90%
    Singapore 90%

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