Hong Kong’s SFC consults on REIT code

23 June 2020, Securities and Futures Commission , Regulatory , Investment Funds, Newsletter by Eve Leung, Kristal Lai

On 9 June 2020, the Securities and Futures Commission (SFC) began a two-month consultation on proposed amendments to the Code on Real Estate Investment Trusts (REITs). The SFC intends to provide Hong Kong REITs with more investment flexibility.

Key proposed changes to the Code on REITs include:

(a) 

allowing a REIT to invest in minority-owned properties subject to various conditions;

(b)

allowing a REIT to invest in property development projects in excess of the existing sub-limit of 10% of the gross asset value (GAV) subject to unitholders’ approval and conditions;

(c)

increasing the limit on aggregate borrowings from 45% to 50% of GAV; and

(d)

broadly aligning the requirements applicable to connected party transactions and notifiable transactions with those under the Listing Rules of the Stock Exchange of Hong Kong.

The proposals are subject to investment restrictions requiring that at least 75% of the GAV of a REIT must be invested in recurrent rental income generating real estate (including qualified minority-owned properties), and not more than 25% of the GAV may be invested in property development projects, non-qualified minority-owned properties, financial instruments and other ancillary investments.

There are also other miscellaneous proposed amendments, which serve to better align requirements and codify existing practices.

The consultation will end on 10 August 2020. The consultation paper can be viewed here.