Director Ron Cheng quoted in Singapore Business Review article on new debt rules affecting Singapore REITs

07 Oct 2024

Head of Investment Funds, Director Ron Cheng was quoted in a Singapore Business Review article titled, “New debt rules may boost appeal of Singapore REITs”, where he highlighted the implications of new regulatory limits for Singapore's Real Estate Investment Trusts (REITs).
 
A proposal by the Monetary Authority of Singapore to let REITs take on more debt may boost assets under management and enable them to better compete with regional peers. The proposal will allow REITs to raise their leverage limit or gearing ratio to 50% from 45% and lower the interest coverage ratio (ICR) threshold to 1.5 times from 2.5 times.
 
Ron noted that these changes will empower REITs to showcase their financial strength and “ability to service debts while remaining well-capitalised and observing prudent borrowing levels”. He said this could “foster greater investor confidence and increase its appeal as an investment product”.
 
Ron explained that the revised ICR offers REITs some relief, reducing the pressure to meet stringent thresholds amid fluctuating earnings and rising borrowing costs. However, he cautioned that REITs with gearing ratios of 45% or less, previously unencumbered by limits, may need to “recalibrate their borrowing arrangements or risk breaching the new minimum ICR”.
 
Ron also advised that REIT managers should thoroughly analyse their REIT’s interest expenses and overall debt to ensure that they can comfortably meet the new requirements. He emphasised the importance of robust technology and accounting systems for ongoing data retrieval and analysis, enabling REITs to navigate this evolving landscape effectively.
 
You may click here to read the full article on Singapore Business Review.

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