Daily news - 20 Jan

MAS gives REITs clarity on Leverage ratios
REIT managers here have been given more breathing space on borrowing limits by the MAS, which has clarified how downward revaluations of properties should be treated. MAS confirmed that if the aggregate leverage has gone up because of a decline in property values, it will not amount to a breach of leverage limits. MAS also pointed out that refinancing of existing debt by a REIT is not to be construed as incurring additional borrowings. MAS also said that it will permit REITs to raise debt for refinancing purposes earlier than the actual maturity of the debt to be refinanced, without having to include such funds raised in the aggregate leverage limit, provided that the funds are set aside solely for the purpose of repaying the maturing debt. This clarification would ease the pressure on these REITs to recapitalise through raising fresh equity and reduce pressure on the unit price of these REITs. However, ratings agencies will continue to be nervous about property depreciation. Any downward revaluation of the underlying property would raise the loan-to-valuation ratios as far as banks lending to REITs are concerned. In a separate development, MAS is understood to have sought feedback recently on whether the current minimum distribution payout ratio for S-REITs should be lowered, from 90 per cent of distributable income currently to, say, 75-80 per cent. This is in response to a need to conserve cash.

Source: Kim Eng