Leverage limit announcement for Reits won't come so soon: MAS

Singapore

SINGAPORE real estate investment trusts (S-Reits) and listing aspirants are seeking clarity on any amendment to leverage limits, so as to either better plan their capital structure or formalise their listing plans for 2020.

Ronald Tan, director of listings at the Singapore Exchange (SGX) told The Business Times that there are new Reit sponsors who have written to the Monetary Authority of Singapore (MAS), asking the central bank when it plans to implement the changes as they do not want their initial public offerings (IPOs) to get caught in the middle of the announcement.

S-Reits are currently subject to a leverage limit of 45 per cent, but MAS in July this year published a consultation paper proposing amendments and invited the industry to comment on how the leverage limit can be recalibrated. For instance, the Reits could perhaps be allowed to leverage up to 50 per cent if they meet minimum interest coverage requirements; and for certain other Reits, possibly up to 55 per cent if they have shown good financial discipline.

This is to enable S-Reits to compete against private capital and foreign Reits when making real estate acquisitions, especially overseas, which tend to involve more competitive bidding processes that are time-sensitive.

Market talk is that there are three Reit IPOs slated for early next year - UOB Hampshire Reit, a US grocery-anchored mall cum self-storage space Reit; a UK office Reit sponsored by homegrown private equity firm Elite Capital; and another Chinese Reit.

"I'm equally waiting with bated breath (for the announcement)," Mr Tan said. He hopes that with the raised limit, S-Reits will be able to beat 2019's record of S$6.1 billion in equity share sales in the secondary market.

"If (the leverage limit) goes up a little bit, we could see a lot more impetus for acquisition activity - which would boost both lending and equity capital raising by Reits."

But it seems that the industry may have to wait longer for the results of the consultation.

A MAS spokesman told BT that MAS is still studying the industry feedback, including differing viewpoints and alternative suggestions on the methodology, and "the continued engagement with stakeholders takes time".

Mr Tan said: "To be fair to MAS, it has done a very rigorous soliciting of feedback - and that's good because it means they are engaging the entire ecosystem. But I think as time goes on, we need to reach a landing point. To be fair to the sponsors and Reit managers, they need to know if we are going to keep it at 45 per cent or increase it. There are many implications for them when they look to the new year.

"While everyone appreciates what MAS is doing to gather feedback from stakeholders, they also need to know (the outcome) in order to plan for 2020."

The consultation closed on Aug 1, 2019. Industry players were expecting the decision to be announced soon.

Maybank Kim Eng, in a Nov 20 report, said: "We anticipate MAS's decision any day now." It added that S-Reits' acquisition momentum is likely to continue into 2020 as a compression in yields and possibly higher leverage limit raise debt headroom by 10 per cent to 16 per cent.

S-Reits have ramped up their acquisition activity to complete about S$6.5 billion in deals this year, most of which were overseas and largely funded with equity despite their comfortable debt headroom.

This is as opportunistic buys in Singapore continue to elude them; and given the additional advantage that overseas assets are mostly freehold and come with longer weighted average lease expiries and leases embedded with annual rental escalations, which support distributions.