Greater flexibility of regulatory framework essential for Reit market development
MAS’ proposed regulatory changes are positive, and more can be done to help Singapore’s players thrive in a global economy
IN JULY 2024, the Monetary Authority of Singapore (MAS) issued a consultation paper on proposed amendments to the leverage requirements for real estate investment trusts (Reits). Currently, a Reit is required to have an interest coverage ratio (ICR) of at least 2.5 times if it intends to increase its aggregate leverage from 45 per cent to 50 per cent. Under the consultation, MAS proposes to simplify the leverage requirements by subjecting all Reits to a minimum ICR threshold of 1.5 times, and an aggregate leverage limit of 50 per cent.
Reit players would likely view this proposal as “sweet rain after a long drought” – a move that has long been awaited.
A reality check
The ICR measures a Reit’s ability to meet its interest payment obligations – how easily it can pay interest on its outstanding debt. A minimum ICR of 2.5 times to increase aggregate leverage to 50 per cent means that for every dollar of interest servicing obligation, a Reit needs to demonstrate it is generating at least 2.5 dollars in earnings to pay its interest expenses.
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