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MAS also seeks to introduce a minimum interest coverage ratio of 2.5 times, a yardstick that gauges firms’ capacity to service debt, to lower risks related to servicing the debt.
Investors in Singapore’s real estate investment trusts (REITs) will have another reason to be happy, as the central bank mulls looser debt rules that could lead to more acquisitions by property managers, reported Bloomberg.
The Monetary Authority of Singapore (MAS) recently concluded a one-month consultation period which looked into raising the amount of debt that could be taken by REITs – from 45 percent to 50 percent of their deposited assets.
MAS also seeks to introduce a minimum interest coverage ratio of 2.5 times, a yardstick that gauges firms’ capacity to service debt, to lower risks related to servicing the debt.
Analysts believe the changes to the leverage limit will enable REITs to gain quicker and easier access to funding for acquisitions, given that debt is a faster and cheaper source of capital compared with equity.
“Raising leverage limits will allow Singapore REITs to have larger debt headroom in property acquisitions and thus become more competitive against foreign peers,” said CMC Markets Singapore strategist Margaret Yang.
Australia and the US, for instance, do not impose any leverage limits, while Germany, Belgium and the Netherlands have limits ranging from 60 percent to 66 percent.
“The new measures will help those REITs that have been actively managing their portfolio and making distribution-accretive acquisitions that will enhance long-term growth for unit-holders,” said Morningstar Investment Service analyst Ken Foong.
He cited Ascendas REIT as an example of such trust. It acquired 38 properties across Australia and the US in three months, mirroring a broader trend of Singapore’s property giants making big time investments.
“If implemented, higher gearing limits would be a net positive for Singapore REITs as it could drive higher distribution per unit, and help level the playing field in property acquisitions,” said Morgan Stanley analyst Wilson Ng.
Victor Kang, Digital Content Specialist at PropertyGuru, edited this story. To contact him about this or other stories, email victorkang@propertyguru.com.sg
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