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CapitaLand Mall Trust
Annual Report 2015
Singapore REIT Sector
In the 2015 Budget delivered on 23 February 2015,
the Singapore Government announced the following
extension or enhancement to the tax concessions
for listed REITs:
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distributions of taxable income to qualif ying
non-tax resident non-individual unitholders will
continue to apply to distributions made from 1 April
2015 to 31 March 2020 (both dates inclusive);
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income derived from overseas properties will apply
so long as the overseas properties are acquired by
a REIT or its wholly-owned Singapore tax resident
subsidiaries on or before 31 March 2020;
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that allows S-REITs to claim GST incurred on the
setting up of their various tiers of special purpose
vehicles (SPVs) that hold overseas properties,
GST incurred by their SPVs on the acquisition and
holding of overseas properties, and GST incurred
on qualifying business expenses will continue to
apply in respect of GST on qualifying expenses
incurred up to 31 March 2020. In addition,
the GST concession will be enhanced to allow
S-REITs to claim GST on business expenses
incurred by S-REITs from 1 April 2015 to 31 March
2020 to set up SPVs that are used solely to raise
funds for the S-REITs.
The stamp duty remission on the transfer of a
Singapore immovable property to a REIT or the
transfer of 100.0% of the issued share capital of
a Singapore-incorporated company that holds
immovable properties situated outside Singapore
to a REIT has lapsed after 31 March 2015. Stamp
duty at approximately 3.0% on the consideration or
the market value, whichever is the higher, will have
to be paid by a REIT on any contract, agreement or
instrument executed on or after 1 April 2015 for the
acquisition of immovable property in Singapore.
From a regulatory standpoint, the Monetary Authority
of Singapore (MAS) issued responses to feedback
on the ‘Consultation Paper on Enhancements to the
Regulatory Regime Governing Real Estate Investment
Trust (REIT) and REIT Managers’. To implement the
changes to the REIT regime, the MAS has issued the
Revised Code on Collective Investment Schemes,
MAS Notice to all holders of a Capital Markets Services
Licence for REIT management and Guidelines to
all holders of a Capital Markets Services Licence
for REIT management, which became effective on
1 January 2016.
The key changes to these regulations include, amongst
others (a) imposing a single-tier leverage limit of 45.0%
for all REITs regardless of credit rating and removing
the option for a REIT with a credit rating to leverage up
to 60.0%, and (b) increasing the development limit of
a REIT to 25.0% of its deposited property, subject to
certain conditions
1
being met.
In December 2015, the Federal Reserve announced
the first interest rate rise since 2006. After holding
its benchmark federal funds rate near zero for seven
years, the Federal Reserve increased rates by 25 bps.
A further increase in the federal funds rate may
influence the Singapore Government 10-year bond
yield and Singapore Interbank Offered Rate (SIBOR)
to increase further and the S-REITs may face the
corresponding increase in borrowings costs when
financing new acquisitions and refinancing existing
debts. To compensate for the higher borrowing costs
and achieve better yields, S-REITs will now have to
look at how best to achieve growth, for example,
by undertaking the development of new assets,
asset enhancements, active lease management and
proactive asset management to achieve positive
rental reversions. In addition, S-REITs need to
re-examine and explore various alternatives for capital
management.
Looking Forward
The framework for S-REITs has been continually
refined since the public listing of the first S-REIT in
2002. We believe that the S-REIT will proactively adapt
to the changes introduced to the regulatory regime.
1 The total contract value of property development activities may exceed 10.0% of a REIT’s deposited property (subject to a maximum of 25.0% of the
REIT’s deposited property) only if:
(i) the additional allowance of up to 15.0% the REIT’s deposited property is utilised solely for redevelopment of an existing property that has been held
by the REIT for at least three years and which the REIT will continue to hold for at least three years after the completion of the redevelopment; and
(ii) the REIT obtains the specific approval of unitholders at a general meeting for the redevelopment of the property.
