”We expect the market’s comfort level for aggregate leverage to stabilise at 43%-44% over time and an ICR of around 1.8x to be the market’s new “line in the sand”. Investors are likely to favour S-REIT managers that practise financial discipline and uphold the market’s expectation of S-REITs as lower risk vehicles that generate stable income to pay its capital providers, the OCBC Credit Research report says.
On a broad top-down view, an OCBC Credit Research report dated Dec 6, in its outlook for 2025, points out that spreads on SGD credits are trading “tight in the secondary market” relative to historical levels. “Interest rates are expected to remain flat or decline in 2025,” the report states.
The report says the proposed changes for S-REITs by the Monetary Authority of Singapore to rationalise leverage requirements with a minimum interest coverage ratio of 1.5x and a single aggregate leverage limit of 50% on all REITs is a friendly move as S-REIT managers will have higher flexibility in managing their capital and a higher debt headroom for executing growth plans.
