Single leverage limit, additional disclosures imposed on all S-Reits: MAS
S-Reit managers will have to disclose their plans to manage Reits’ leverage and ICR levels in their financial and annual reports
ALL Singapore-listed real estate investment trusts, or S-Reits, will be subject to a minimum interest coverage ratio (ICR) of at least 1.5 times, and an aggregate leverage limit of 50 per cent with immediate effect, in a move to standardise leverage limits across the sector.
They will also need to provide additional disclosures related to their leverages in their interim financial result announcements and annual reports starting from the financial periods ending on or after Mar 31, 2025.
The changes follow a public consultation held by the Monetary Authority of Singapore (MAS) between July and August this year.
The ICR is a measure of how well a company can repay the interest on its debt, while the aggregate leverage refers to the ratio of a Reit’s total debt to total assets. The aggregate leverage, also known as gearing ratio, indicates a company’s ability to take on more debt.
Previously, S-Reits that intended to increase their aggregate leverage from 45 per cent to 50 per cent had to meet a minimum ICR requirement of 2.5 times.
The regulator said in a statement after trading hours on Thursday (Nov 28) that the changes, which it had initially proposed in its public consultation, received “broad support” across industry practitioners, a professional body and individuals.
The new leverage requirements will “foster prudent borrowing… while offering operational flexibility” to Reits, while the ICR requirement will underscore the responsibility of Reit managers to ensure that Reits can meet their interest payments adequately.
The standardised leverage limit is also among the strictest globally, added MAS.
Leverage disclosures
S-Reit managers will have to disclose their plans to manage the Reits’ leverage and ICR levels in their upcoming financial and annual reports, so that investors will be aware of how a Reit’s credit profile could be affected by changes in market conditions.
S-Reits will also have to perform and disclose sensitivity analyses on the impact of changes in their earnings before interest, tax, depreciation and amortisation (Ebitda) and interest rates on the ICRs of Reits.
The analyses should include, at the minimum, two separate scenarios. The first is based on a 10 per cent decrease in Ebitda; the second is based on a 100-basis point – or one percentage point – increase in interest rates.
The sensitivity analyses should be based on the weighted average interest cost of each Reit. This will promote better comparability across the industry, said MAS.
The Reit manager should also disclose plans to improve the Reit’s ICR if the ratio falls below 1.8 times.
The latest disclosure requirements for S-Reits come on top of existing disclosures that are currently required of Reits in their annual reports and interim financial result announcements. These disclosures include information relating to a Reit’s aggregate leverage, ICR and adjusted ICR. Reit managers are also currently required to give their views of how an increase in aggregate leverage between the end of the preceding financial year and current financial year would affect the risk profile of the property fund.
The regulator, responding to feedback on the leverage requirement changes, said: “These additional measures will encourage greater accountability in Reit managers in exercising greater care when considering additional leverage, or when a Reit’s ICR position is weakened.” MAS’ response paper is available on its website.
The new requirements come as the high interest rate environment has been punishing for locally listed Reits amid rising finance costs and valuations coming under pressure.
While the US Federal Reserve has finally begun to cut its rates, with one round in September and another in November this year, commentators have expressed concern that the pace of cuts may slow under a newly elected Trump administration next year.
Analysts previously told The Business Times that the new leverage requirements will give Reit managers headroom to navigate higher refinancing rates, although they could lower Reits’ valuations.
The last time the leverage limit was adjusted was in 2020, when it was raised from 45 per cent to 50 per cent to give S-Reits greater flexibility in managing their capital structures. This was amid the challenging environment in the wake of the Covid-19 pandemic.
