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CMFAS Module 10 – REIT
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Question 1 of 30
1. Question
As a part of the criteria for licensing among REITs, individuals who are engaged in the following functions on behalf of the REIT manager should be appointed as the REIT manager’s representatives, except for?
I. Investment management
II. Manufacturing market
III. Asset management
IV. Investor relationsCorrect
Don’t lose sight of the fact that individuals who are based overseas and engaged in these functions on behalf of the REIT manager (as mentioned in options I, III, and IV) should be appointed as representatives of the REIT manager, but they will not count towards satisfying the minimum of three full-time Singapore-resident representatives among REITs in Singapore.
Incorrect
Don’t lose sight of the fact that individuals who are based overseas and engaged in these functions on behalf of the REIT manager (as mentioned in options I, III, and IV) should be appointed as representatives of the REIT manager, but they will not count towards satisfying the minimum of three full-time Singapore-resident representatives among REITs in Singapore.
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Question 2 of 30
2. Question
Which of the following are the general responsibilities and prerequisites criterion for the REIT management must attain?
I. It should invest primarily in foreign properties and or change the nature of appointment of its director
II. It should satisfy the country’s financial regulatory authority that it will discharge its duties, efficiently, honestly and fairly
III. It should the country’s financial regulatory authority that its substantial personnel is fit and proper in accordance with a cr
IV. It should conduct activities, such as accounting, compliance, and investor relations.Correct
Keep in mind that REITs can focus on either foreign or domestic properties, there are no restrictions on this. Furthermore, A REIT manager should procure professional indemnity insurance, with coverage that complies with the minimum requirements set out by an arbitrary guideline set by the financial regulatory authority that approves such REITs.
Incorrect
Keep in mind that REITs can focus on either foreign or domestic properties, there are no restrictions on this. Furthermore, A REIT manager should procure professional indemnity insurance, with coverage that complies with the minimum requirements set out by an arbitrary guideline set by the financial regulatory authority that approves such REITs.
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Question 3 of 30
3. Question
Given his relationship with the Sponsor, which REIT entity shall not be considered an independent director of the REIT manager?
Correct
Please note that all REITs should comply with all principles and guidelines set out in an established Code of Corporate Governance. Additionally, individuals with control or back-office responsibilities in the Sponsor or its related companies may be appointed as members of the REIT’s Audit Committee. In such cases, the Audit Committee should comprise at least three directors who are independent (which still couldn’t include the independent director of the Sponsor).
Incorrect
Please note that all REITs should comply with all principles and guidelines set out in an established Code of Corporate Governance. Additionally, individuals with control or back-office responsibilities in the Sponsor or its related companies may be appointed as members of the REIT’s Audit Committee. In such cases, the Audit Committee should comprise at least three directors who are independent (which still couldn’t include the independent director of the Sponsor).
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Question 4 of 30
4. Question
What term refers to the value of the property fund’s total assets based on the latest valuation, or in the case of a stapled securities structure, the value of the stapled group’s total assets based on the latest valuation?
Correct
Emphasize the general knowledge that the property fund may or may not be listed on a securities exchange. Also, the trustee or controlling unitholder of the property fund (being a company) means any other company which is it is a subsidiary or holding company or is a subsidiary of such holding company or one in the equity of which it or such other company or companies that have taken together (directly or indirectly) have an interest of 30% or more.
Incorrect
Emphasize the general knowledge that the property fund may or may not be listed on a securities exchange. Also, the trustee or controlling unitholder of the property fund (being a company) means any other company which is it is a subsidiary or holding company or is a subsidiary of such holding company or one in the equity of which it or such other company or companies that have taken together (directly or indirectly) have an interest of 30% or more.
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Question 5 of 30
5. Question
What phrase refers to a transaction between the REIT and an interested party or to the extent that the transaction affects the interests of participants of the REIT, a transaction between the REIT manager and its related corporation?
Correct
Please underline the certainty that a REIT, in general, is a trust that invests primarily in real estate and real estate-related assets specified by the Authority in the Code on Collective Investment Schemes and all or any of the units which are listed for quotation on a securities exchange. Meanwhile, an “interested party” among REITs may refer to a director, chief executive officer or controlling shareholder of the manager, or the manager, the trustee or controlling unitholder of the property fund.
Incorrect
Please underline the certainty that a REIT, in general, is a trust that invests primarily in real estate and real estate-related assets specified by the Authority in the Code on Collective Investment Schemes and all or any of the units which are listed for quotation on a securities exchange. Meanwhile, an “interested party” among REITs may refer to a director, chief executive officer or controlling shareholder of the manager, or the manager, the trustee or controlling unitholder of the property fund.
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Question 6 of 30
6. Question
When talking about alternative forms of PII among REITs, if the management assesses that the interests of investors are not undermined, then it can proceed to establish an alternative form of PII as type “Hybrid PII” if the following conditions are attained, except for?
I. Sub-limits should be set for the non-PII sections
II. Minimum coverage should be at least 5 times the required quantum under non-hybrid PII
III. Total coverage less the sub-limits for the non-PII sections should be at least 5 times the required quantum under non-hybrid PII
IV. Total coverage less the sub-limits for the non-PII sections should be at least equivalent to the required quantum under non-hybrid PIICorrect
Bear in mind that a “Group PII”, on the other hand, if the deductible of the Group PII is greater than 20% of the REIT manager’s base capital, an undertaking from the Sponsor or the parent company of the REIT manager to cover the excess in the event of a claim would be required. Furthermore, there’s another type of alternative PII called “Group Hybrid PII.”
Incorrect
Bear in mind that a “Group PII”, on the other hand, if the deductible of the Group PII is greater than 20% of the REIT manager’s base capital, an undertaking from the Sponsor or the parent company of the REIT manager to cover the excess in the event of a claim would be required. Furthermore, there’s another type of alternative PII called “Group Hybrid PII.”
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Question 7 of 30
7. Question
What is referred to as a valuation based on transacted prices or yields of similar real estate assets, without a physical inspection of the property?
Correct
Highlight the fact that the real estate-related assets among REITs as mentioned from the question above refers to listed or unlisted debt securities and listed shares of or issued by property corporations, mortgage-backed securities, other property funds, and assets incidental to the ownership of real estate (e.g. furniture).
Incorrect
Highlight the fact that the real estate-related assets among REITs as mentioned from the question above refers to listed or unlisted debt securities and listed shares of or issued by property corporations, mortgage-backed securities, other property funds, and assets incidental to the ownership of real estate (e.g. furniture).
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Question 8 of 30
8. Question
The trust deed of a property fund should contain the following provisions, except for which option/s?
I. A general meeting may be convened at the request of not less than 50 participants
II. The manager may be removed by way of a resolution passed by a simple majority of participants present
III. A general meeting may be convened at the request of participants representing not less than 10% of the issued units in the property fund
IV. The fees and expenses of the auditor or auditors should not be fixed by the general meetingCorrect
Please note that under trust deed provisions for removal of manager and convening of meetings among REITs, another provision required for the trust deed of a property fund is the situation that the statement of total return for the period since the preceding account (or in the case of the first account, since the constitution of the property fund) made up to a date not more than four months before the date of the meeting should be laid before the annual general meeting.
Incorrect
Please note that under trust deed provisions for removal of manager and convening of meetings among REITs, another provision required for the trust deed of a property fund is the situation that the statement of total return for the period since the preceding account (or in the case of the first account, since the constitution of the property fund) made up to a date not more than four months before the date of the meeting should be laid before the annual general meeting.
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Question 9 of 30
9. Question
What is pertained to as a collective investment scheme or REIT that is exempted under section 305 of the SFA from authorization and prospectus registration requirements?
Correct
It must be always observed that one way to streamline the fundraising process for REITs is by removing the requirement for REITs to submit a notification to the established financial regulatory authority to obtain a “Restricted Scheme” status when they make an offer of units to accredited and other investors. This will make the fundraising process for REITs more efficient, and bring it in line with the fundraising process for companies and business trusts.
Incorrect
It must be always observed that one way to streamline the fundraising process for REITs is by removing the requirement for REITs to submit a notification to the established financial regulatory authority to obtain a “Restricted Scheme” status when they make an offer of units to accredited and other investors. This will make the fundraising process for REITs more efficient, and bring it in line with the fundraising process for companies and business trusts.
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Question 10 of 30
10. Question
A property fund may acquire assets from or sell assets to interested parties, or invest in securities of or issued by interested parties, if adequate disclosures are made in the prospectus or circular, stating which of the following doings?
I. The identity of the interested parties and their relationships with the property fund
II. The prices at which these assets are to be acquired or sold
III. The details of the valuations performed and their assessed values
IV. The maximum amount of subscriptions to be receivedCorrect
Take into account that a property fund may also acquire assets from or sell assets to interested parties, or invest in securities of or issued by interested parties if each of those assets is acquired from the interested parties at a price not more than the higher of the two assessed values, or sold to interested parties at a price not less than the lower of the two assessed values.
Incorrect
Take into account that a property fund may also acquire assets from or sell assets to interested parties, or invest in securities of or issued by interested parties if each of those assets is acquired from the interested parties at a price not more than the higher of the two assessed values, or sold to interested parties at a price not less than the lower of the two assessed values.
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Question 11 of 30
11. Question
While the regulatory limit is at 45%, REITs would in practice maintain what percentage of a buffer from the regulatory limit so that they are better able to respond to changing market conditions?
Correct
Please remember that such buffers are crucial, for instance, declining property prices. The need to maintain such a buffer means that REITs would generally keep their leverage to within 40%. Given this, it is strongly indicated that REITs be afforded a higher leverage limit so that they have more flexibility to optimize their capital structure as debt tends to be a cheaper source of capital compared to equity and takes less time to raise.
Incorrect
Please remember that such buffers are crucial, for instance, declining property prices. The need to maintain such a buffer means that REITs would generally keep their leverage to within 40%. Given this, it is strongly indicated that REITs be afforded a higher leverage limit so that they have more flexibility to optimize their capital structure as debt tends to be a cheaper source of capital compared to equity and takes less time to raise.
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Question 12 of 30
12. Question
Subject to the restrictions and requirements on investments and activities among REITs, a property fund may only invest in which classifications?
I. An investment non-cash equivalent items
II. An investment in another property fund that is authorized
III. An investment that is a freehold real estate
IV. An investment that is a leasehold real estateCorrect
Always remember that under permissible investments among REITs, a property fund may also invest in local or foreign assets, subject to the terms of its trust deed. Where an investment in a foreign real estate asset is made, the manager should ensure that the investment complies with all the applicable laws and requirements in that foreign country, for example, those relating to foreign ownership and good title to that real estate.
Incorrect
Always remember that under permissible investments among REITs, a property fund may also invest in local or foreign assets, subject to the terms of its trust deed. Where an investment in a foreign real estate asset is made, the manager should ensure that the investment complies with all the applicable laws and requirements in that foreign country, for example, those relating to foreign ownership and good title to that real estate.
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Question 13 of 30
13. Question
In evaluating the credit profiles of REITs, there are key indicators that investors, analysts and credit rating agencies would normally consider. Under this matter, a number of REIT jurisdictions have imposed safeguards that are tied to what factor among REITs?
Correct
Be aware that leverage ratio can be in the form of a debt-to-asset ratio, which is a measure of how well a REIT is capitalized, or interest coverage ratio (or “ICR”), which is a measure of a REIT’s ability to service its debt obligations from regular sources of income. Moreover, a case could, therefore, be made that in addition to leverage limit, REITs should also be encouraged to maintain a certain level of interest coverage. In this regard, views are sought on whether the use of ICR in combination with the leverage limit is appropriate.
Incorrect
Be aware that leverage ratio can be in the form of a debt-to-asset ratio, which is a measure of how well a REIT is capitalized, or interest coverage ratio (or “ICR”), which is a measure of a REIT’s ability to service its debt obligations from regular sources of income. Moreover, a case could, therefore, be made that in addition to leverage limit, REITs should also be encouraged to maintain a certain level of interest coverage. In this regard, views are sought on whether the use of ICR in combination with the leverage limit is appropriate.
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Question 14 of 30
14. Question
Under the matter of restrictions and requirements on investments and activities of property funds among REITs, a property fund should comply with the following restrictions and requirements, apart from?
I. A property fund should not undertake property development activities on its own
II. A property fund should not have a total contract value of less than 10% of the property fund’s deposited property
III. A property fund should not invest in vacant land and mortgages except for mortgage-backed securities
IV. A property fund should not invest more than 5% of its deposited property in any one issuer’s securitiesCorrect
Always keep in mind that the total contract value of property development activities undertaken and investments in uncompleted property developments should not exceed 10% of the property fund’s deposited property. The total contract value of property development activities may exceed 10% of the property fund’s deposited property (subject to a maximum of 25% of the property fund’s deposited property) only if certain prerequisites are attained.
Incorrect
Always keep in mind that the total contract value of property development activities undertaken and investments in uncompleted property developments should not exceed 10% of the property fund’s deposited property. The total contract value of property development activities may exceed 10% of the property fund’s deposited property (subject to a maximum of 25% of the property fund’s deposited property) only if certain prerequisites are attained.
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Question 15 of 30
15. Question
A valuer for the purpose of valuation of the property fund’s real estate investments among REITs, be it for full or desktop valuation, should accomplish what responsibilities?
I. Should be authorized under any law of the state or country where the valuation takes place to practise as a valuer
II. Should have the necessary expertise and experience in valuing properties of the type in the question and in the relevant area
III. Should value the same property for more than two consecutive financial years
IV. Should not disclose to the trustee any pending business transactions, contracts under negotiation, other arrangements with the managerCorrect
Kindly note that a valuer among REITs, be it for full or desktop valuation, should not value the same property for more than two consecutive financial years; and should disclose to the trustee any pending business transactions, contracts under negotiation, other arrangements with the manager, or any other party whom the property fund is contracting with and other factors that would interfere with the valuer’s ability to give an independent and professional valuation of the property.
Incorrect
Kindly note that a valuer among REITs, be it for full or desktop valuation, should not value the same property for more than two consecutive financial years; and should disclose to the trustee any pending business transactions, contracts under negotiation, other arrangements with the manager, or any other party whom the property fund is contracting with and other factors that would interfere with the valuer’s ability to give an independent and professional valuation of the property.
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Question 16 of 30
16. Question
Under the fundraising process for REITs, a REIT normally starts the discussion with cornerstone investors at what stage of the IPO process?
Correct
It should be borne in mind that a REIT normally starts the discussion with cornerstone investors at an early stage of the IPO process. However, at this stage of the process, the REIT would not be in a position to file the notification as a Restricted Scheme given that the prospectus would not have been finalized and the REIT manager would not have received the Capital Markets Services Licence.
Incorrect
It should be borne in mind that a REIT normally starts the discussion with cornerstone investors at an early stage of the IPO process. However, at this stage of the process, the REIT would not be in a position to file the notification as a Restricted Scheme given that the prospectus would not have been finalized and the REIT manager would not have received the Capital Markets Services Licence.
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Question 17 of 30
17. Question
What is meant by the term “restricted real estate investment trust” among REITs?
Correct
It is specified that a “restricted real estate investment trust” also means a restricted scheme that invests primarily in real estate and real estate-related assets specified by the Authority in the Code on Collective Investment Schemes, and all or any units of which are listed for quotation on an approved exchange or whose application to list such units has been submitted and not rejected or withdrawn by such approved exchange.
Incorrect
It is specified that a “restricted real estate investment trust” also means a restricted scheme that invests primarily in real estate and real estate-related assets specified by the Authority in the Code on Collective Investment Schemes, and all or any units of which are listed for quotation on an approved exchange or whose application to list such units has been submitted and not rejected or withdrawn by such approved exchange.
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Question 18 of 30
18. Question
When referring to the aggregate leverage limit, if borrowings are to be used to fund partly or wholly the purchase of a new property, the value
of the deposited property may include the value of the new property that is being purchased, provided that which of the following conditions are attained?
I. The monies raised by such borrowings are utilized solely for the purchase of the property
II. The borrowings incurred before the new property is purchased whilst the manager is aware should not be returned by the manager
III. The borrowings are incurred before the purchase of the property is completed, those borrowings are kept in a separate bank account
IV. The borrowings are incurred on the same day as that on which the purchase of the property is completedCorrect
Please make clear that if borrowings are incurred before the new property is purchased and the manager subsequently becomes aware or ought reasonably to have become aware that the purchase will not take place, the manager should return the monies raised by such borrowings as soon as practicable. Also, the aggregate leverage limit is not considered to be breached if due to circumstances beyond the control of the manager occurs a depreciation in the asset value of the property fund.
Incorrect
Please make clear that if borrowings are incurred before the new property is purchased and the manager subsequently becomes aware or ought reasonably to have become aware that the purchase will not take place, the manager should return the monies raised by such borrowings as soon as practicable. Also, the aggregate leverage limit is not considered to be breached if due to circumstances beyond the control of the manager occurs a depreciation in the asset value of the property fund.
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Question 19 of 30
19. Question
What is the term among REITs is pertinent to something that should not be offered to any institutional investor for subscribing for units in the property fund at the time of listing of the property fund?
Correct
Remember the instance where subscriptions by the institutional investors are made prior to the listing and such investors assume risks of non-completion of the listing or have to pay for the units regardless of whether the property fund is subsequently listed, this prohibition for discounts will not be applied at any cost.
Incorrect
Remember the instance where subscriptions by the institutional investors are made prior to the listing and such investors assume risks of non-completion of the listing or have to pay for the units regardless of whether the property fund is subsequently listed, this prohibition for discounts will not be applied at any cost.
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Question 20 of 30
20. Question
For the disclosure requirements of REITs, an annual report should be prepared by the manager at what time of the REITs financial year?
Correct
Stress the fact that an annual report should be prepared by the manager at the end of each financial year, disclosing details of all real estate transactions entered into during the financial year, including the identity of the buyers or sellers, purchase or sale prices, and their valuations (including the methods used to value the assets). More so, details of all the property fund’s real estate assets, including the location of such assets, their purchase prices, and the latest valuations must also be disclosed.
Incorrect
Stress the fact that an annual report should be prepared by the manager at the end of each financial year, disclosing details of all real estate transactions entered into during the financial year, including the identity of the buyers or sellers, purchase or sale prices, and their valuations (including the methods used to value the assets). More so, details of all the property fund’s real estate assets, including the location of such assets, their purchase prices, and the latest valuations must also be disclosed.
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Question 21 of 30
21. Question
Any offer to redeem units pursuant to redemption requirements for unlisted property funds of REITs should be sent to participants with adequate notice and should state which of the following disclosures?
I. The aggregate leverage limit, if a property fund invests through shareholders
II. The indicative price at which each unit will be redeemed
III. The period during which the offer will remain open
IV. The assets or borrowings that will not be used to satisfy the minimum amount of redemption requestsCorrect
Please note that another disclosure that must be made in the situation mentioned in the question is the actuality that redemption requests made pursuant to the offer will be satisfied within 30 calendar days after the closing date of the offer. Such period may be extended to 60 calendar days after the closing date of the offer if the manager satisfies the trustee that such extension is in the best interest of the property fund.
Incorrect
Please note that another disclosure that must be made in the situation mentioned in the question is the actuality that redemption requests made pursuant to the offer will be satisfied within 30 calendar days after the closing date of the offer. Such period may be extended to 60 calendar days after the closing date of the offer if the manager satisfies the trustee that such extension is in the best interest of the property fund.
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Question 22 of 30
22. Question
When referring to the annual report that should be prepared by the REIT at the end of each financial year which discloses the tenant profile of the property fund’s real estate assets, what other constituents must be included?
I. Trade sector mix of tenants
II. Lease maturity profile
III. Ten most significant holdings
IV. Total number of tenantsCorrect
Bear in mind that the tenant profile of the property fund’s real estate assets should also include the top 10 tenants and the percentage of total gross rental income attributable to each of these top 10 tenants. As well as the trade sector mix of tenants, in terms of the percentage of total gross rental income attributable to major trade sectors.
Incorrect
Bear in mind that the tenant profile of the property fund’s real estate assets should also include the top 10 tenants and the percentage of total gross rental income attributable to each of these top 10 tenants. As well as the trade sector mix of tenants, in terms of the percentage of total gross rental income attributable to major trade sectors.
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Question 23 of 30
23. Question
When convening meetings among REITs, a general meeting to be called the “annual general meeting” should, in addition to any other meeting, be held once in every calendar year and not more than how many months after the holding of the last preceding annual general meeting?
Correct
Hold on to the fact that although the “annual general meeting” should be held once in every calendar year and not more than 15 months after the holding of the last preceding annual general meeting, so long as a property fund holds its first annual general meeting within 18 months of its constitution, it need not hold it in the year of its constitution or in the following year. Furthermore, the statement of total return for the period since the preceding account made up to a date not more than four months before the date of the meeting should be laid before the annual general meeting.
Incorrect
Hold on to the fact that although the “annual general meeting” should be held once in every calendar year and not more than 15 months after the holding of the last preceding annual general meeting, so long as a property fund holds its first annual general meeting within 18 months of its constitution, it need not hold it in the year of its constitution or in the following year. Furthermore, the statement of total return for the period since the preceding account made up to a date not more than four months before the date of the meeting should be laid before the annual general meeting.
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Question 24 of 30
24. Question
Under the Regulations cited in securities and futures for REIT bonds, the term “latest practicable date”, in relation to a requirement that applies to an offer information statement, refers to the following definitions except for?
I. The latest practicable in the context of that requirement
II. The lodge in the written consents referred to that date
III. The date no earlier than 7 days before the date of lodgment of that offer information statement with the Authority
IV. The requirement for the offer information statement to be signed on that dateCorrect
Turn over in one’s mind that in the context of the question above, “REIT Bond” means any debenture of a REIT issued or proposed to be issued by a trustee on behalf of the REIT; or any right, option or derivative in respect of any such debentures of a REIT. In addition to this insight, “issue manager” means an issue manager to an offer of REIT Bonds, whether called an issue manager, a lead manager, an arranger or otherwise. And in general, “Manager”, in relation to an offer of REIT Bonds, means the responsible person for the REIT.
Incorrect
Turn over in one’s mind that in the context of the question above, “REIT Bond” means any debenture of a REIT issued or proposed to be issued by a trustee on behalf of the REIT; or any right, option or derivative in respect of any such debentures of a REIT. In addition to this insight, “issue manager” means an issue manager to an offer of REIT Bonds, whether called an issue manager, a lead manager, an arranger or otherwise. And in general, “Manager”, in relation to an offer of REIT Bonds, means the responsible person for the REIT.
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Question 25 of 30
25. Question
Some subdivisions of Division 1 of Part XIII of the Act shall not apply to an offer of REIT Bonds. These aforesaid exemptions shall be subject to which of the following conditions below?
I. The offer information statement shall comply with the requirements set out in the First and Second Schedule
II. The offer information statement shall not be lodged with the Authority
III. The offer shall be made within 6 months from the date of lodgment of the offer information statement with the Authority
IV. The person making the offer shall cause a true copy of the written consents to be depositedCorrect
Please note that the Manager shall keep, and make available for inspection, by the unitholders of the REIT, creditors, and persons who have subscribed for or purchased the REIT Bonds to which the offer information statement relates, without payment of any fee, a true copy of every written consent deposited for a period of at least 6 months after the lodgment of the offer information statement with the Authority.
Incorrect
Please note that the Manager shall keep, and make available for inspection, by the unitholders of the REIT, creditors, and persons who have subscribed for or purchased the REIT Bonds to which the offer information statement relates, without payment of any fee, a true copy of every written consent deposited for a period of at least 6 months after the lodgment of the offer information statement with the Authority.
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Question 26 of 30
26. Question
A property fund of a REIT is not prohibited from engaging an interested party as a property management agent or marketing agent for the property fund’s properties provided that any fees or commissions paid to the interested party are at what range?
Correct
Take into consideration that the agreement with the interested party should not contain any term that materially restricts the ability of the property fund to remove the agent. The audit committee of the manager should review the compliance of the agent with the terms of the agency agreement at least once every two years and take remedial actions where necessary.
Incorrect
Take into consideration that the agreement with the interested party should not contain any term that materially restricts the ability of the property fund to remove the agent. The audit committee of the manager should review the compliance of the agent with the terms of the agency agreement at least once every two years and take remedial actions where necessary.
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Question 27 of 30
27. Question
Given the fact that REITs have to meet specific requirements from general criteria provided by the Authority, what is referred to as the trust deed of the scheme in relation to a scheme constituted as a unit trust?
Correct
Please retain the information that in relation to a scheme constituted as a Variable Capital Company (or simply referred to as “VCC”) or a sub-fund thereof, the constituent document refers to the constitution of the Variable Capital Company, as defined under section 2 of the VCC Act. Besides, a “VCC Custodian” means an entity to which the assets of a collective investment scheme constituted as a VCC or a sub-fund of a VCC is entrusted for safekeeping.
Incorrect
Please retain the information that in relation to a scheme constituted as a Variable Capital Company (or simply referred to as “VCC”) or a sub-fund thereof, the constituent document refers to the constitution of the Variable Capital Company, as defined under section 2 of the VCC Act. Besides, a “VCC Custodian” means an entity to which the assets of a collective investment scheme constituted as a VCC or a sub-fund of a VCC is entrusted for safekeeping.
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Question 28 of 30
28. Question
Liquid among trusts like REITs means the ability of a financial instrument to be readily converted into cash at a value close to its fair price under normal market conditions. In determining if a financial instrument is liquid, the manager should also take into account what factors?
I. Unsettlement time and number of instrument
II. Size of the holding relative to the issue size
III. Bid-offer spread and transaction costs
IV. Characteristics or nature of the instrumentCorrect
Don’t forget the verity that the manager should have a reasonable belief that the financial instrument does not impair the scheme’s ability to comply with its redemption obligations as well as meet other payment commitments. As guidance, other payment commitments may include margin calls or collateral requirements from the use of derivatives.
Incorrect
Don’t forget the verity that the manager should have a reasonable belief that the financial instrument does not impair the scheme’s ability to comply with its redemption obligations as well as meet other payment commitments. As guidance, other payment commitments may include margin calls or collateral requirements from the use of derivatives.
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Question 29 of 30
29. Question
What term pertains to a financial instrument which derives its value from, or whose value depends on, the characteristics of one or more underlying assets, reference rates or indices under the scheme requirements for REITs?
Correct
Keep in your perception that in the case where a recognized scheme or the underlying scheme which an authorized scheme feeds into intends to use or invest in financial derivatives, a prominent statement drawing attention to this intention should be included in the marketing material of the recognized scheme or authorized scheme which feeds into an underlying scheme. Also, financial derivatives may only be used for the purpose of hedging existing positions in a portfolio, or EPM provided that the financial derivatives are not used to gear the overall portfolio.
Incorrect
Keep in your perception that in the case where a recognized scheme or the underlying scheme which an authorized scheme feeds into intends to use or invest in financial derivatives, a prominent statement drawing attention to this intention should be included in the marketing material of the recognized scheme or authorized scheme which feeds into an underlying scheme. Also, financial derivatives may only be used for the purpose of hedging existing positions in a portfolio, or EPM provided that the financial derivatives are not used to gear the overall portfolio.
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Question 30 of 30
30. Question
What is referred to as the operating expenses incurred in the management of a scheme, expressed as a percentage of its net assets among trusts like REITs?
Correct
Make sure to remember that the expense ratio should be calculated in accordance with the guidelines for the disclosure of expense ratios issued by the Authority in-charge of the REITs. Moreover, another term to remember under the scheme requirements for REITs is the “Turnover ratio”, which means a ratio of the number of times per year that a dollar of assets is reinvested. It should be calculated based on the lesser of purchases or sales of underlying investments of a scheme expressed as a percentage of daily average net asset value.
Incorrect
Make sure to remember that the expense ratio should be calculated in accordance with the guidelines for the disclosure of expense ratios issued by the Authority in-charge of the REITs. Moreover, another term to remember under the scheme requirements for REITs is the “Turnover ratio”, which means a ratio of the number of times per year that a dollar of assets is reinvested. It should be calculated based on the lesser of purchases or sales of underlying investments of a scheme expressed as a percentage of daily average net asset value.