The Monetary Authority of Singapore (MAS) is proposing to simplify leverage requirements for REITs. This will subject all of them to the same minimum interest coverage ratio (ICR) threshold of 1.5 times and an aggregate leverage limit of 50 per cent.
Ever felt like decoding S-REIT financials was like trying to solve a puzzle blindfolded?
The MAS seems to have heard our collective sighs and is proposing some game-changing simplifications to REIT leverage requirements.
Personally, I love the proposal (see The Straits Times coverage here). I feel that this is definitely a move in the right direction, which can help investors better understand the financial status of REITs.
You can read the Consultation Paper on Proposed Amendments to the Leverage Requirements for REITs here.
Table of ContentsWhat The MAS Proposal For REITs Means
Before we proceed, it is important to understand that the leverage limit and ICR serve different objectives but work together to indicate a REIT’s financial strength.
The leverage limit (also known as gearing) seeks to ensure that a REIT manages its debt level and is well-capitalisedThe interest coverage ratio measures the debt-servicing ability of a REIT
Now that we understand these two frequently used terms, here are 3 points summarizing the proposals in the consultation paper by MAS.
1. Simplified leverage requirements for REITs:All REITs are to maintain a minimum Interest Coverage Ratio of 1.5xSingle aggregate leverage limit of 50% for all REITs2. New disclosure requirementsREITs to perform and disclose sensitivity analyses on the impact of changes in EBITDA and interest rates on their abilities to service their loansTo be included in interim financial results and annual reports3. Rationale for changesTo simplify existing requirements while maintaining prudent borrowing practicesTo provide investors with better information on how market conditions could affect a REIT’s credit profile
The ICR refers to the
