Which S-REITs will benefit from MAS's reduced interest coverage ratio?

MAS proposed a 1.5x minimum ICR for all REITs.

The central bank's move to relax financial covenants for all Singapore REITs will benefit mostly those whose financial ratios are trending closer to the current 2.5x floor and 45% leverage ratio, DBS underscored.

These S-REITs include Lendlease Global Commercial REIT, Keppel REIT, Suntec REIT, and Mapletree Pan Asia Commercial Trust.

The Monetary Authority of Singapore (MAS) proposed that all S-REITs face a higher gearing limit of 50% and a reduced minimum interest coverage ratio (ICR) of 1.5x, from the current 2.5x for REITs maintaining 50% gearing.

Although the rule has key beneficiaries, DBS stated it will still result in positive sentiment among S-REITs, as it significantly reduces the "tail-end risk" from extended higher interest rates.

"These newly revised rulings will introduce more financial flexibility for S-REITs in a higher and longer-than-expected interest rate environment," DBS said.

"With improved flexibility from the revised limits, we see the tail-end risk of the ICR dipping towards sub-2.0x as remote for now, given the average S-REIT sector ICR of 3.9x, and the diversified refinancing profile of the sector," DBS added.

DBS added that the measure would enable S-REITs to be more competitive in the pursuit of acquisitions compared to other bidders that are more leverage-based buyers when the interest rate environment turns more conducive.

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