The Monetary Authority of Singapore (MAS) today 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.
2 MAS proposes that a minimum ICR of 1.5 times apply to all REITs. This underscores the responsibility of REIT managers in ensuring that REITs can adequately meet their interest payments. The proposed threshold is set at 1.5 times as it will now be applied at all times 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%.
3 The ICR and aggregate leverage work complementarily to indicate a REIT’s financial strength. 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.
4 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
5 MAS invites views and suggestions from interested parties on the proposals set out in this consultation paper which is available here. Comments may be submitted via the FormSG link by 23 August 2024.
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[1] The current requirement for REITs to have a minimum ICR of 2.5 times before their aggregate leverage may exceed 45% (up to a maximum of 50%) will be removed.
[2] EBITDA refers to earnings before interest, tax, depreciation and amortisation (excluding effects of any fair value changes of derivatives and investment properties, and foreign exchange translation).
