The Securities and Futures Commission (SFC) released on 25 June 2010 its consultation conclusions to extend the Codes on Takeover and Mergers and Share Repurchases (Takeover Codes) to SFC authorised real estate investment trusts (REITs) and to apply the market misconduct and disclosure of interest provisions under the Securities and Futures Ordinance ("SFO") to listed collective investment schemes (CISs). At the same time, SFC announced that both the Code on REITs (REIT Code) and the Takeover Codes are amended pursuant to the consultation conclusions, taking effect from the start of 25 June 2010.
Main implications on changes
As from 25 June 2010, the trigger provisions under Rules 26.1(a) and 26.1(b) of the Takeover Codes will apply to any person or a group of persons holding less than 30 per cent of voting rights of a REIT, who increases its holding of voting right in that REIT to 30 per cent or more.
The creeper provisions under Rules 26.1(c) and 26.1(d) of the Takeover Codes will apply to any person or a group of persons holding 30 per cent or more, but no more than 50 per cent of the voting rights of a REIT, who increases its holding of voting rights in that REIT Code by more than 2 per cent from the relevant lowest percentage holding in the 12 month period prior to the relevant increase in holding. For this purpose, the lowest percentage holding of that person or group of persons for the 12 month period prior to 25 June 2010 is deemed to be the percentage holding of that person or group of persons as at the start of 25 June 2010.
The REIT Code has been amended so that a manager of a REIT may be appointed or removed by ordinary resolution passed by the unitholders of that REIT. All unitholders, including the manager and its associates (if they are unitholders), are entitled to be counted in the quorum and vote their units in relation to this ordinary resolution. All REIT managers and trustees must ensure that the trust deeds of their REITs are amended by 25 July 2010 to reflect such amendments to the REIT Code.
No amendments were made to the Takeover Code and REIT Code to enable the statutory compulsory acquisition mechanism and scheme of arrangement mechanism to apply to REITs. If an offeror satisfies the delisting requirements of the Listing Rules, unitholders who do not accept the offer will become unitholders of an unlisted trust which will no longer be regulated by the REIT Code and the Takeover Code as it ceases to be qualified as a SFC authorised REIT. SFC recognises this issue and has provided some guidance in its consultation conclusions that:
- after an offer becomes unconditional, acceptance of offer should remain open for a longer period than normally required under Rule 15.3 of the Takeover Codes, where SFC expects that this period will not be more than 28 days and a corresponding extension to the written notice period; and
- he offeror should clearly disclose in its offer document the intended listing status of the REIT after the transaction so that the unitholders can make informed decisions as to whether to accept the offer or continue to invest in an unlisted trust which may not be regulated under the Takeover Codes and the REIT Code.
Other amendments to REIT Code
As an additional note to Rule 11.8, SFC may consider waiving strict compliance with the requirement to dispose of all real estate assets of a REIT by public auction or open tender if the delisting provisions mentioned below and the Takeover Code is complied with.
When a REIT is involved in a merger, takeover, amalgamation or restructuring, the manager and trustee must now ensure compliance with the Takeover Codes in addition to consulting SFC.
When a REIT is proposing to delist, the manager and the trustee must ensure compliance with the Listing Rules and consult SFC.
Amendments to Takeover Codes
Consequential amendments were made to the Takeover Codes to enable them to apply to REITs and to create a new Schedule IX, which is a guidance note on the application of the Takeover Codes specifically for REITs.
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