ASIC seeks better disclosure from unlisted property trusts

Managers of unlisted property trusts will need to meet “concrete standards” on six areas of potential risk for retail investors, under a new ASIC proposal.

ASIC has proposed for unlisted property trusts to begin disclosing against the benchmarks and amended disclosure principles on July 1 next year.

The proposals follow a review of disclosure documents from responsible entities in the $28-billion-dollar unlisted property trust sector.

It found a number of cases where “inconsistent levels of disclosure may have impaired an investor’s ability to compare products”.

As a result, ASIC proposes extending its benchmark disclosure model used for other products to unlisted property schemes across six areas. They are:

• gearing policy: addresses a scheme’s policy on gearing at an individual asset level

• interest cover policy: addresses a scheme’s policy on the level of interest cover at an individual asset level

• interest capitalisation: addresses whether the interest expense of a scheme is capitalised

• valuation policy: addresses the way valuations are carried out by a responsible entity in relation to a scheme’s assets

• related party transactions: addresses a responsible entity’s policy on related party transactions

• distribution practices: addresses a scheme’s practices in relation to paying distributions from realised income.

Under the proposal, ASIC wants managers of trusts to discuss the six benchmarks in the product disclosure statement (PDS) in a manner “that allows prospective retail investors to make an informed decision about whether to invest”.

Furthermore, trust managers will need to notify investors of any material changes to the information a responsible entity has disclosed against a benchmark.

The benchmarks would also need to be supported by advertising material.

If a trust is not meeting the benchmark, it will need to address it on an ‘if not, why not’ basis – meaning explaining the alternative measures it has in place to mitigate the concern underlying the benchmark.

“Failing to meet one or more of these benchmarks does not mean a product provided by a particular responsible entity necessarily represents a poor investment,” the ASIC proposal says.

ASIC chairman Greg Medcraft says the proposals are aimed at improving the level, comparability and consistency of disclosure provided to retail investors.

“Our experience indicates that investors need better quality and relevant disclosure, presented in a way best suited to investor understanding,” Mr Medcraft said.

“PDSs must be worded and presented in a clear, concise and effective manner to help retail investors assess an offer and make informed investment decisions.”

The proposals also clarify the eight disclosure principles in the current regulatory guide, and provide further guidance on how responsible entities should apply the principles.

Comments on the consultation are due by September 6.