A key factor is the REIT’s capacity to cover its interest cost and pay distributions, which depends on their interest coverage ratio (ICR), a metric that credit analysts focus on.
The Code of Collective Investment Schemes (CIS), which the S-REITs fall under, will be amended to streamline leverage requirements including the definition of the interest coverage ratio.
Investors usually invest in REITs for their distributions rather than their capital returns. Hence, although REITs are a hybrid, a key part of their investment returns is their ability to distribute distributions and distributions per unit (DPU). Credit risk for S-REITs is based on their ability to pay DPU, which is heavily reliant on the financial health of the company.
