MAS proposes simplified leverage requirements for S-Reits, imposes minimum ICR threshold of 1.5 times

The Monetary Authority of Singapore (MAS) on Wednesday (Jul 24) published a consultation paper proposing to simplify leverage requirements for all real estate investment trusts (Reits).

Under the set of proposals, all Singapore Reits, or S-Reits, will be subject to a minimum interest coverage ratio (ICR) threshold of 1.5 times, and an aggregate leverage limit of 50 per cent.

Commenting on the proposed ICR, the regulator said: “This underscores the responsibility of Reit managers in ensuring that Reits can adequately meet their interest payments.”

Currently, Reits that intend to increase their aggregate leverage from 45 per cent to 50 per cent must meet a minimum ICR requirement of 2.5 times. In the proposals, this requirement will be removed.

The ICR and aggregate leverage work complementarily to indicate a Reit’s financial strength, said MAS.

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.

To simplify the requirements, MAS is proposing that a single aggregate leverage limit of 50 per cent apply to all Reits going forward.

“A leverage limit of 50 per cent, together with the ICR floor, will continue to foster prudent borrowing by Reits,” said the authority.

The proposals, which are available in a consultation paper published on MAS’ website, come as the high interest rate environment has been punishing for locally listed Reits amid rising finance costs and valuations coming under pressure.

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