The Monetary Authority of Singapore (MAS) has published a consultation paper to subject all REITs to a minimum interest coverage ratio (ICR) threshold of 1.5 times and an aggregate leverage limit of 50%, as it simplifies leverage requirements for the sector. MAS proposes that a minimum ICR of 1.5 times apply to all REITs. Currently, the ICR requirement of 2.5 times is to be met only by REITs which intend to increase their aggregate leverage from 45% to 50%. To simplify the requirements, MAS proposes that a single aggregate leverage limit of 50% apply to all REITs going forward. A leverage limit of 50%, together with the ICR floor, will continue to foster prudent borrowing by REITs, the MAS says.
The proposal underscores the responsibility of REIT managers in ensuring that REITs can adequately meet their interest payments. The ICR and aggregate leverage work complementarily to indicate a REIT’s financial
strength.
To provide investors with information on how a REIT’s credit profile could be affected by changes in market conditions, MAS proposes that REITs perform and disclose sensitivity analyses on the impact of changes in EBITDA and interest rates on REITs’ ICRs. This disclosure is to be made in their interim financial results and annual reports.
