27 February 2020
Following the announcement by the Singapore Exchange (“SGX”) on the changes to the quarterly reporting (“QR”) framework which came into effect on 7 February 2020, many of the managers of real estate investment trusts (“REITs”) have enquired about the implication of the new QR framework on the ability of the REITs managed by them to continue with their quarterly distributions.
SGX has since issued a new Practice Note 7.7 (Announcement of dividends and other corporate actions) (Mainboard Rules) and Practice Note 7G (Announcement of dividends and other corporate actions) (Catalist Rules) to provide guidance to issuers on quarterly distributions and other corporate actions under the revised quarterly reporting framework.
Practice Note 7.7 and Practice Note 7G came into effect on 7 February 2020.
Rule 704(25) of the Mainboard Rules states that after the end of the first three quarters of its financial year, half year or financial year, as the case may be, an issuer must not make specific corporate action announcements (i.e. dividend, bonus issue or rights issue, record date, capital return or passing of a dividend), unless it is accompanied by the financial statements for the quarter, half year or financial year (as set out in Appendix 7.2), as the case may be, or the financial statements (as set out in Appendix 7.2) have been announced.
In Practice Note 7.7, SGX has clarified and granted an exemption from the requirements of Rule 704(25) to permit issuers to announce quarterly distributions without being accompanied by the results for the relevant period, subject to the following conditions:
- the issuer must have a committed dividend policy to announce dividends on a quarterly basis and such policy must have been communicated to shareholders;
- the issuer must confirm, for each dividend announced for the first or third quarter of the financial year, that after making payment of the dividend, the issuer has sufficient financial resources to fulfil its liabilities as and when they fall due; and
- in the case of an issuer that is a corporation, the issuer must confirm, for each dividend announced for the first or third quarter of the financial year, that the corporation complies with or will comply with section 403 of the Companies Act or similar statutory requirements in its place of incorporation.
Notwithstanding this exemption, SGX has reminded all issuers of their obligation to make immediate disclosures of material information under Rule 703, which will include a material development that will cause dividends to significantly deviate from expectations based on previous announcements, or if no dividend is paid.
Accordingly, listed trusts (including S-REITs) which currently have a quarterly distribution policy and which are able to fulfil the conditions set out above, will be able to continue with their quarterly distribution policy while at the same time performing financial reporting on a half-yearly basis under the new QR framework, without the need for quarterly results announcements.
Other corporate actions
Paragraph 2 of Practice Note 7.7 further clarifies the restricted period (i.e. blackout period) (“Restricted Period”) for announcements of bonus issue or rights issue, record date (formerly known as “books closure date”) or capital return for purposes of Rule 704(25) of the Mainboard Rules.
The applicable restricted periods will depend on which of the two following categories an issuer falls within:
- An issuer that announces its financial statements for its half year in accordance with Rule 705(3)(b)(ii) and its full financial year in accordance with Rule 705(1): The Restricted Periods shall commence from after the end of the issuer’s half year and full financial year until the financial statements for these financial periods have been announced.
- An issuer that announces its financial statements for each of the first three quarters of its financial year in accordance with Rule 705(2) or Rule 705(3)(b)(i) and its full financial year in accordance with Rule 705(1): The Restricted Periods for such announcements shall commence from after the end of the first three quarters of the financial year and the full financial year, as the case may be, until the financial statements for these financial periods have been announced.
Other than the Restricted Periods set out above, Practice 7.7 makes it clear that Rule 704(25) does not prohibit issuers from making announcements of bonus issue or rights issue, record date or capital return at all other periods.
By way of an illustration, if a REIT with a 31 December financial year end adopts half yearly financial reporting, assuming that:
- the REIT announces its half-year financial statements on 31 July, the REIT will be entitled to announce its rights issue between 31 July up till 31 December, for example on 1 October; and
- the REIT announces its full year financial statements on 15 February, the REIT will be entitled to announce its rights issue between 15 February up till 30 June, for example on 1 April,
without the need for any accompanying quarterly financial statements announcement for the relevant quarter ending 30 September or, as the case may be, for the quarter ending 31 March.
The following materials are available from the SGX website www.sgx.com: