CFA Institute: Better REIT management needed

HONG KONG: The CFA Institute, the global association of investment professionals, proposes change to the management of Asia-Pacific REITs to protect investors' interest in its Asia-Pacific REITs: Building Trust Though Better REIT Governance report release from its Hong Kong office on Friday Feb 18.

"Better REIT governance structures and regulations will increase trust and confidence and facilitate growth in new and prospective markets," CFA head of Standards and Financial Market Integrity (Asia Pacific) Lee Kha Loon said at the CFA Institute in Hong Kong.

The report focused on the four largest REIT markets in the region — namely, Australia, Japan, Singapore and Hong Kong. Issues of conflict in interests between REIT sponsors, managers and unitholders require structural reforms to protect investor interests.

"Given the infancy of some REIT markets in Asia and the potential for growth in new markets, we believe better governance will help long-term value creation for the investor," said Lee.

Cast studies in the report demonstrated weaknesses of current governance practices and the effect it has on REIT unitholders, such as limiting the potential for acquisition of a REIT at favourable prices because of conflicted interests of the dominant unitholders; REIT fee structures that reward growth in assets at the expense of value creation; manager entrenchment and the potential conflicts from related party transactions among various interests associated with REIT.

In the report the CFA Institute proposes several changes to existing REITs regulations in the countries under review. It suggests a governance structure for REITs and recommends changes such as management be internally managed rather than outsourced; an independent board of director subject to election and removal by unitholders; and annual general meetings for REITs to afford unitholders opportunity to meet and query REIT management.