“While the Monetary Authority of Singapore (MAS) has revised guidelines to allow S-REITs to gear up to 50%, in the event that ICR ratios are larger than 2.5x, we do not see the S-REITs heading there despite most meeting these criteria. This additional debt headroom in the low interest rates environment now becomes a headroom for S-REITs to manoeuvre in the event that gearing level inches higher when asset values decline,” they add.
DBS Group Research analysts Geraldine Wong, Dale Lai, Rachel Tan and Derek Tan believe that most Singapore REITs (S-REITs) are able to keep within a 45% gearing ratio level — a “market comfortable” level which could potentially drive a re-look at credit ratings.
In their Nov 3 note, the analysts highlight that one of the emerging concerns raised among investors is the probability of S-REITs breaching their gearing limits and interest coverage ratio (ICR), given the rise in interest expenses which could outpace the rise of revenues and net property income (NPI) heading into 2023.
