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Following the issuance of FRS 110 Consolidated Financial Statements (“FRS 110”), investments in Real Estate Investment Trusts (“REITs”) was identified as an industry that was significantly impacted on adoption of the standard. In response to this, in December 2013, the Institute of Singapore Chartered Accountants (“ISCA”) issued a practical guide titled “Application of FRS 110 Consolidated Financial Statements: Investments in Real Estate Investment Trusts (REITs)”. Whilst the guide outlined some key considerations on whether the Sponsors of REITs have control over the REITs of two different governance structures, it did not address specifically whether the Sponsors would control the REIT Manager.
In cases where the REIT Sponsor is the sole shareholder of the REIT Manager and can unilaterally appoint and remove the board of the REIT Manager, it may be clear that the REIT Manager is controlled by the REIT Sponsor. However, under the alternative structure (the “Alternative Structure”) as set out in Appendix 3 to the practical guide on “Application of FRS 110 Consolidated Financial Statements: Investments in Real Estate Investment Trusts (REITs)”, questions arise as to whether a REIT Sponsor still has control over its wholly-owned REIT Manager after relinquishing its right as the sole shareholder of the REIT Manager to appoint and remove the board of the REIT Manager.
The purpose of this guidance is to set out the specific facts and circumstances to consider when assessing whether or not consolidation of the REIT Manager by a REIT Sponsor is required if the REIT Sponsor puts in place the alternative structure.
Click here for guidance on consolidation of REIT Manager Click here for guidance issued in December 2013