Singapore’s central bank on Thursday said it is seeking views on its proposal to simplify the leverage requirements for all real estate investment trusts (REITs) to cap the debt they can take on and reduce default risks.
All Singapore REITs will be subject to a minimum interest coverage ratio (ICR) threshold of 1.5 times and an aggregate leverage limit of 50%, under the proposal brought forth by the Monetary Authority of Singapore.
The ICR – a financial ratio that measures a company’s ability to meet its interest payments on debt – in this case would mean for every dollar of interest expense, the REIT needs to have S$1.50 of earnings before interest and taxes.
The current requirement for REITs is to have a minimum ICR of 2.5 times before their aggregate leverage may exceed 45% up to a maximum of 50%.
Leverage refers to the amount of debt that a REIT is using to finance its assets and a limit on it would cap the amount of debt a REIT can take on as a percentage of its total assets.
Currently, REITs could increase their leverage beyond 45% up to 50% on meeting certain conditions, but the new proposal by MAS would simplify this by setting a universal limit.
“MAS also proposes to require REITs to perform and disclose sensitivity analyses on the impact of changes in EBITDA and interest rates on REITs’ ICRs in their interim financial results and annual reports,” it said while inviting views and suggestions from interested parties on the proposals set out.
