To help S-REITs better compete against private capital and their foreign peers when making asset acquisitions, the MAS has indicated it is considering raising the current leverage limit of 45%.
Currently, the 34 S-REITs average a debt-to-asset ratio of about 34%-35%. Based on indicative data extracted from their latest published financial statements and/or annual reports, these REITs may have the capacity to take on additional working capital of approximately S$8.3 billion and S$15.4 billion, if they boosted leverage ratios to 40% and 45% respectively.
If Singapore’s central bank lifts the leverage limit to 50%, this could create combined working capital of approximately S$22.5 billion for the 34 S-REITs. REITs typically take on debt to fund capital-intensive acquisitions – which allows them to grow their portfolios both domestically and internationally – as well as asset enhancement initiatives. Such strategies help boost distributions for unit holders.
Among the 34 REITs, Parkway Life REIT has the lowest all-in debt cost of 0.9% and highest ICR of 13.2x. Another three trusts – Cromwell European REIT, Keppel DC REIT and IREIT Global – also have low all-in debt cost levels coupled with high interest cover ratios.
SGX lists 34 REITs, seven stapled trusts and three property trusts with a combined market capitalisation of more than S$100 billion. S-REITs was the top net buy sector in January-June 2019, drawing net institutional inflows of S$396.3 million.
REIT popularity in Singapore is exemplified in multiple ways – they comprise one-tenth of Straits Times Index (STI) constituents, all of the STI Reserve List stocks, approximately one-tenth of the total market capitalisation of stocks listed on SGX, and a quarter of the top 20 stocks by turnover on a day-to-day basis.
To help Singapore REITs better compete against private capital and their foreign peers when making asset acquisitions, the Monetary Authority of Singapore (MAS) has indicated that it is considering raising the current leverage limit of 45%.
“The industry has provided feedback that at the current leverage limit of 45%, REITs face challenges when competing against other bidders such as private equity funds, property companies and foreign REITs. These bidders often have more flexibility to use debt to optimise their capital structure,” Abigail Ng, Executive Director of the Monetary Authority of Singapore, said in a speech at the REITAS Conference 2019 last week.
“Some have also pointed out that other REIT jurisdictions have higher or no leverage limits. We have undertaken a review of this area, and we see some room for recalibration,” she added.
Singapore’s central bank also noted that one possible approach is to use a combination of leverage limit and minimum interest cover requirement (ICR) in determining the amount of leverage REITs can take on. They may take on higher leverage if they are able to meet a minimum ICR.
Leverage, defined as the debt-to-asset ratio, measures how well-capitalised the trust is. The ICR measures the REIT’s debt-servicing ability, and is calculated by dividing its net property income by interest expense.
The MAS is considering allowing a REIT's leverage to exceed 45%, but not breach the 50% mark, if the REIT has a minimum ICR of 2.5 times after taking into account interest payments arising from the new debt.
Previously, S-REITs could borrow up to 35% of their total assets, with the limit bumped up to 60% if it obtained a credit rating from a ratings agency and disclosed it to the investing public. In 2015, the central bank replaced this with a single-tier leverage limit of 45%.
Currently, the 34 REITs on SGX average a debt-to-asset ratio of about 34%-35%. Based on indicative data extracted from their latest published financial statements and/or annual reports, these S-REITs may have capacity to take on additional working capital of approximately S$8.3 billion and S$15.4 billion if they boosted leverage ratios to 40% and 45% respectively. If Singapore’s central bank lifts the leverage limit to 50%, this could create combined working capital of approximately S$22.5 billion for the S-REITs.
REITs typically take on debt to fund capital-intensive acquisitions – which allows them to grow their portfolios both domestically and internationally – as well as asset enhancement initiatives (AEIs) that include refurbishment of aged properties. Such strategies help to boost distributions for unit holders.
The table below details the debt profiles of the 34 REITs on SGX, sorted by name.
|Name||Weighted Average Debt Tenor
|Interest Coverage Ratio
|All-in Debt Cost
|AIMS APAC REIT||2.4||5.0||3.6||499.7||1,484.8||33.7|
|ASCOTT RESIDENCE TRUST||3.6||4.5||2.1||1,905.5||5,300.0||35.7|
|BHG RETAIL REIT||NA||NA||4.2||226.1||695.3||32.5|
|CACHE LOGISTICS TRUST||3.8||4.3||3.9||494.2||1,412.7||37.4|
|CAPITALAND COMMERCIAL TRUST||3.6||5.8||2.5||3,904.0||11,101.5||35.2|
|CAPITALAND MALL TRUST||4.2||4.9||3.2||3,664.1||11,613.5||34.4|
|CAPITALAND RETAIL CHINA TRUST||3.1||5.0||3.0||1,074.0||3,111.5||35.5|
|CROMWELL EUROPEAN REIT||2.7||9.2||1.4||1,030.0||2,768.1||37.0|
|EC WORLD REIT||NA||NA||4.9||476.9||1,515.8||31.3|
|FORTUNE REIT *||NA||NA||2.9||1,544.8||7,433.8||20.9|
|FRASERS CENTREPOINT TRUST||2.4||6.0||2.8||813.0||2,840.4||28.8|
|FRASERS COMMERCIAL TRUST||2.6||4.7||3.0||627.6||2,158.2||29.1|
|FRASERS LOGISTICS & INDUSTRIAL TRUST||2.4||7.5||2.4||1,036.4||2,968.6||35.1|
|KEPPEL DC REIT||3.3||12.9||1.7||746.4||2,260.2||32.5|
|KEPPEL-KBS US REIT||3.6||4.7||3.8||573.4||1,513.8||38.1|
|LIPPO MALLS INDONESIA RETAIL TRUST||2.0||NA||Excl. perps 5.1;
Incl. perps 5.6
|MANULIFE US REIT||2.5||3.9||3.3||911.9||2,440.0||37.6|
|MAPLETREE COMMERCIAL TRUST||3.6||4.5||3.0||2,349.0||7,100.8||33.1|
|MAPLETREE INDUSTRIAL TRUST||4.4||6.5||3.0||1,559.5||4,607.1||33.8|
|MAPLETREE LOGISTICS TRUST||4.1||4.9||2.7||2,993.7||8,078.3||37.7|
|MAPLETREE NORTH ASIA COMMERCIAL TRUST||3.7||4.2||2.5||2,867.9||7,820.4||36.6|
|OUE COMMERCIAL REIT||3.3||3.3||3.5||1,723.2||4,581.4||39.4|
|SABANA SHARIAH INDUSTRIAL REIT||1.1||3.9||4.2||319.0||1,023.3||33.9|
|SOILBUILD BUSINESS SPACE REIT||3.1||3.9||3.5||480.1||1,248.0||39.3|
|STARHILL GLOBAL REIT||3.0||3.8||3.3||1,132.0||3,168.0||35.7|
Among the 34 REITs, Parkway Life REIT has the lowest all-in debt cost of 0.9% and the highest ICR of 13.2 times. Another three trusts have low all-in debt cost levels coupled with high interest cover – Cromwell European REIT has all-in debt cost of 1.4% and ICR of 9.2 times, Keppel DC REIT has all-in debt cost of 1.7% with ICR of 12.9 times, while IREIT Global has all-in debt cost of 1.5% with ICR of 10.0 times.
The table below details the performances of the 34 REITs listed on SGX, sorted by market capitalisation.
|CapitaLand Mall Trust||C38U||9,996||22.1||37.2||13.6||4.4||1.1|
|CapitaLand Commercial Trust||C61U||8,474||32.2||36.7||20.8||4.0||1.0|
|Mapletree Commercial Trust||N2IU||6,050||29.9||38.6||18.9||4.4||1.1|
|Mapletree Logistics Trust||M44U||5,924||33.1||36.8||24.3||5.0||1.0|
|Mapletree Industrial Trust||ME8U||4,654||24.1||24.1||15.6||5.4||1.4|
|Mapletree North Asia Commercial Trust||RW0U||4,645||32.0||34.4||19.9||5.1||0.8|
|Fortune REIT *||F25U||3,695||26.2||25.8||10.3||4.7||0.7|
|Frasers Centrepoint Trust||J69U||2,973||27.4||28.5||14.6||4.1||1.1|
|Ascott Residence Trust||A68U||2,805||23.5||27.1||13.1||5.5||0.8|
|Frasers Logistics & Industrial Trust||BUOU||2,615||29.1||27.4||17.6||6.4||1.2|
|Keppel DC REIT||AJBU||2,326||30.7||30.5||20.5||4.3||1.5|
|Parkway Life REIT||C2PU||1,839||18.3||16.7||9.9||4.3||1.6|
|Cromwell European REIT||CNNU||1,830||16.1||-4.1||N/A||12.7||1.0|
|Starhill Global REIT||P40U||1,734||20.5||29.3||6.5||5.6||0.8|
|Manulife US REIT||BTOU||1,672||21.4||12.6||10.9||5.9||1.2|
|CapitaLand Retail China Trust||AU8U||1,588||20.9||14.4||8.8||6.5||1.0|
|OUE Commercial REIT||TS0U||1,518||18.2||-6.9||2.6||6.1||0.6|
|Frasers Commercial Trust||ND8U||1,513||26.0||30.3||15.7||5.7||0.9|
|AIMS APAC REIT||O5RU||1,020||14.8||15.6||9.5||7.0||1.0|
|Keppel-KBS US REIT||CMOU||872||32.5||2.8||N/A||7.7||1.0|
|Cache Logistics Trust||K2LU||852||18.4||13.5||6.6||7.5||1.1|
|Lippo Malls Indonesia Retail Trust||D5IU||695||37.2||-17.4||-4.6||8.2||1.0|
|Soilbuild Business Space REIT||SV3U||659||11.6||3.0||6.0||8.3||1.0|
|EC World REIT||BWCU||605||14.6||15.6||5.2||8.2||0.8|
|Sabana Shari'ah Industrial REIT||M1GU||490||23.5||15.0||8.0||6.6||0.8|
|BHG Retail REIT||BMGU||351||0.5||2.3||4.9||7.4||0.9|