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Lifting The Gearing Limit For REITs May Not Come So Soon



In July 2019, Monetary Authority of Singapore (MAS) is considering to raise the gearing ratio for REITs from 45% to a higher level of 50% to 55%. This will definitely boost the REITs sector as a higher gearing ratio will give the REITs more flexibility on debt financing. The proposal is in general welcomed by the industry.


Few months down the road, Singapore REITs and listing aspirants are seeking further clarity on the potential amendment on gearing limit to better plan their capital structure or formalise listing plans for 2020. Unfortunately, MAS flagged that it is likely going to need more time to conduct an extensive review of the proposal. It is currently consolidating feedback from various stakeholders and subject-matter experts.


Let's take a look on the REITs' gearing and debt headroom based on the current 45% gearing


Topping the list in terms of debt headroom are Capitaland Mall Trust, Ascendas REIT, Mapletree Commercial Trust and Mapletree Industrial Trust. These are the bigger blue-chip REITs with a stronger portfolio and lower gearing. Any change of the proposal on lifting the gearing limit may not have much impact on these REITs. We would potentially see more yield-accretive acquisitions by these REITs in 2020.


There are five REITs (highlighted in RED), with a gearing ratio of more than 40%. Excluding Ascott Residence Trust, which is undergoing a merger with Ascendas Hospitality Trust, the remaining four REITs have limited upside in terms of debt financing. Any acquisition would probably go through private placement or issuing rights.



Summary


It is a bit disappointing on the delay of lifting the gearing limit, which is likely not going to happen in 2020. Good news is that the majority of the Singapore REITs has been maintaining a healthy level of gearing ratio, with prudent management on debt financing and fundraising.



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