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S-Reits in better position now to withstand funding shocks: MAS

Thursday, November 27, 2014 - 12:00
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S-REITS, or Singapore's real estate investment trusts, are better placed to withstand funding shocks today than during the Global Financial Crisis (GFC) period, the Monetary Authority of Singapore (MAS) said in its annual Financial Stability Review on Thursday.

S-REITS, or Singapore's real estate investment trusts, are better placed to withstand funding shocks today than during the Global Financial Crisis (GFC) period, the Monetary Authority of Singapore (MAS) said in its annual Financial Stability Review on Thursday.

According to the report by the central bank's Macroeconomic Surveillance Department, this is largely due to better debt management.

During the GFC, S-Reits experienced refinancing pressure when about one-third of their debt matured within the same year in 2009. They have since taken steps to improve their resilience to counter funding shocks.

In 2013, rated S-Reits had a median leverage ratio of 35 per cent while unrated S-Reits had a median leverage ratio of 29 per cent. The weighted-average debt maturity of the S-Reit sector has increased to 3.2 years, from 2.1 years at the end of 2008. The overall debt maturity profile has improved, with maturities spread out over a longer period. To hedge against the risk of rising interest rates, S-Reits have also used derivatives to convert their floating rate borrowings to fixed rates.

The central bank said while the rapid growth of the S-Reit sector may raise systemic risk concerns due to the increased linkages of S-Reits with other parts of the financial system and the economy, risks to the banking system remain well contained.

"Bank loans to S-Reits are less than three per cent of total non-bank lending. The risk of indirect spillovers through S-Reit sponsors is low as the major sponsors have healthy balance sheets and their investments in S-Reits represent only a small share of their total assets,'' MAS said.

It added it will continue to monitor the resilience of the S-Reit sector, together with its potential as a source of systemic risk.