SINGAPORE Trends and Developments Contributed by: Benjamin Tay, Chou Ching, Norman Ho, Vikna Rajah, Chun Kiat and Marcus Tay, Rajah & Tann Asia
Portfolio transactions in practice Where a target portfolio is held through a series of SPVs or a unit trust, the acquirer will typically pur - chase the shares or units of each entity rather than undertaking multiple asset transfers. In-house coun - sel will appreciate the corollary: purchasers of shares assume the entirety of the target’s liabilities, known and unknown. Due diligence must go well beyond property-level enquiries. A thorough investigation will typically encompass the corporate structure and capitalisation of each entity, its historical tax filings and any outstanding assess - ments, employment and regulatory matters, existing financing arrangements and any change-of-control provisions in material contracts. Where the portfolio includes assets in multiple jurisdictions, parallel due diligence workstreams must be co-ordinated carefully. Missing material liability at the due diligence stage in a non-recourse structure will have drastic conse - quences. W&I insurance, non-recourse structures and risk allocation W&I insurance has moved from a rarity to near-stand - ard for corporate real estate transactions, especially where the seller is a private equity fund seeking a clean exit and the prompt return of capital to inves - tors. It provides recourse beyond what a seller may traditionally be prepared to provide coverage for and allows the legal team to focus on policy coverage rath - er than protracted warranty negotiations. Insurers now underwrite both Singapore-specific risks and regional portfolios acquired through Singapore structures. The practical effect is significant. Sellers can achieve a clean exit without prolonged post-completion exposure, while buyers obtain meaningful protec - tion backed by a well-capitalised insurer rather than an SPV with limited residual assets. Retention of a specialist insurance broker with experience in Asian real estate portfolios has become a standard part of transaction preparation for sizeable deals. Non-recourse and limited-recourse structures have become increasingly prevalent. Fund sellers routinely insist on them. The buyer’s recourse is limited to the W&I policy, an escrow or a specific indemnity fund.
No further recourse against the vendor is expected in this structure and this places a premium on the qual - ity of due diligence. While post-completion adjust - ments remain the market norm, practitioners will have noticed that locked box mechanisms, once a European import, are now starting to appear in sale and purchase processes, even those related to cor - porate real estate in Singapore. Real estate counsels are asked to consider leakage protections, permitted leakage carve-outs and adjustment mechanics, and in areas of increasing complexity, experienced trans - action counsel can add significant value. The locked box approach suits fund sellers who wish to fix value at a known date and avoid post-completion disputes The Singapore REIT (S-REIT) market is the largest in Asia outside Japan, with about 40 listed REITs and property trusts holding assets across office, retail, industrial, hospitality and healthcare sectors. LLP structures to hold assets pending sale or injection into a REIT are used alongside other holding structures such as private limited companies, offering tax trans - parency and operational flexibility. Where the ultimate objective is a listing or IPO, pre-IPO restructuring of the holding chain and preparation for public market scrutiny add further complexity. Early engagement on structure saves considerable time and cost at the back end. over working capital movements. REITs, funds and LLP structures The REIT regime imposes requirements on asset type, leverage limits, distribution obligations and related- party transactions that must be anticipated during the structuring phase. Injecting assets into an S-REIT via a sale to a REIT trustee requires careful co-ordina - tion between the REIT manager, the trustee and their respective counsel, and stamp duty treatment of the transfer must be addressed at the outset. Private real estate funds have also grown significant - ly, with international managers using VCCs, limited partnerships and tax incentive schemes (Section 13O and Section 13U) to structure pan-Asian funds. The Section 13O and Section 13U incentives provide tax exemption on specified income for qualifying funds, subject to conditions around minimum assets under management, local business spending and the
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