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
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
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.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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