Investors in Singapore’s much-loved real estate investment trusts (Reits) may soon have another reason to cheer, as the central bank considers looser debt rules that could spur more acquisitions by property managers.
The Monetary Authority of Singapore ended a one-month consultation period on Thursday that looked into increasing the amount of debt that Reits can take on to 50 per cent from 45 per cent of their deposited assets. To minimise risks related to servicing the debt, the central bank also wants to introduce a minimum interest coverage ratio of 2.5 times, a measure that gauges firms’ ability to service debt.
Analysts said any changes to the leverage limit will allow Reits to gain easier and quicker access to funding for acquisitions, as debt is a cheaper and faster source of capital compared with equity. Singapore’s leverage limits for property trusts are among the strictest in the world, according to analysts.
“Raising leverage limits will allow Singapore Reits to have larger debt headroom in property acquisitions and thus become more competitive against foreign peers,” said Margaret Yang, a strategist at CMC Markets Singapore. For instance, the US and Australia don’t impose any leverage limits, while Belgium, Germany and the Netherlands have limits ranging from 60 per cent to 66 per cent. Malaysia and Thailand have limits of 50 per cent and 60 per cent, respectively.
“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 Ken Foong, an analyst at Morningstar Investment Service. He said Ascendas Reit is an example of such a trust.
Last year, Ascendas Reit snapped up 38 properties across UK and Australia in three months alone, reflecting a broader trend of Singapore’s property giants making large-scale investments. In January, CapitaLand Ltd agreed to buy Ascendas Pte and Singbridge Pte in a US$4.4 billion deal, making it Asia’s largest diversified real estate manager.
“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,” Wilson Ng, an analyst at Morgan Stanley, wrote in a recent note.