S-Reits gearing up with healthy balance sheets

THE gearing ratio, also known as aggregated leverage, is the ratio of a Reit's total debt to its total assets. This metric, used to assess a Reit's financial leverage, is closely monitored by investors. A low gearing ratio could point to greater capacity to undertake more debt for future acquisitions while a high gearing ratio could lead to credit concerns especially during economic downturns.

In Singapore, S-Reits have a leverage limit of 50 per cent, imposed by the Monetary Authority of Singapore (MAS). This limit was increased from 45 per cent in April 2020, to provide S-Reits with greater flexibility to manage their capital structure amid the challenging environment from the Covid-19 pandemic.

With active capital management by Reit managers, S-Reits have maintained an average gearing ratio of 36.8 per cent, based on latest company filings which were extracted on Jan 31, 2021.

Based on the sector's average gearing ratio of 36.8 per cent and regulatory limit of 50 per cent, this translates into approximately S$21.6 billion (based on Bloomberg data for total assets multiplied by company-reported gearing ratio) of potential debt headroom for the sector, to fund capital-intensive acquisitions.

The five S-Reits that maintain the lowest gearing ratios are Sasseur Reit, Ascendas India Trust, SPH Reit, CapitaLand China Trust, and Prime US Reit.

Sasseur Reit, the first outlet mall Reit to be listed in Asia, reported aggregate leverage of 27.8 per cent in Q3 2020, leaving it with a debt headroom of S$828 million.

In September 2020, the Reit refinanced loans due in March 2021 by securing an offshore loan facility of an aggregate amount of S$214 million and US$20 million of term loan facilities, as well as S$8 million of revolving credit facility. Sasseur Reit noted that the refinancing exercise improved its loan portfolio and reduced financing cost.

Ascendas India Trust (a-iTrust) is a business trust which invests in IT parks, office properties and warehouses in key Indian cities. While business trusts are not subject to MAS' leverage limit, a-iTrust voluntarily adopts the restriction to enhance the stability of distributions to unitholders. a-iTrust reported gearing ratio of 30 per cent and ample debt headroom of S$1,079 million as of Dec 31, 2020. In February 2021, a-iTrust proposed the acquisition of aVance 6, an office building at HITEC City in Hyderabad, India.

According to its trustee-manager, the gross consideration for the transaction is approximately 5.06 billion Indian rupees (S$92.03 million). It noted that the acquisition will provide a-iTrust an opportunity to scale up its presence in HITEC City and will add Amazon as a tenant to its IT park portfolio.

SPH Reit, a retail Reit with assets in Singapore and Australia, maintained stable gearing ratio of 30.5 per cent in FY 2020. In its latest Q1FY2021 business update ending Dec 31, 2021, the Reit announced that it is in the process of refinancing S$215 million loans maturing by July 2021.

SPH Reit also noted that its gross revenue for the quarter increased 10.8 per cent year-on-year, largely driven by the acquisition of Westfield Marion in Q2 FY2020. SGX RESEARCH

• For more research and information on Singapore's Reit sector, visit sgx.com/research-education/sectors for the monthly S-Reits & Property Trusts Chartbook.
• Source: SGX Research S-Reits & Property Trusts Chartbook.