Coronavirus: New measures to give Reits more flexibility in raising funds, managing cash flow

SINGAPORE – Singapore real estate investment trusts (S-Reits) will have more flexibility in managing cash flow and raising funds in the challenging operating environment, thanks to new measures announced on Thursday (April 16).

The steps comprise an extension of the deadline for distribution of taxable income, a higher leverage limit and the deferment of new regulatory requirements. The aim is to give Reits more breathing room in the midst of a severe economic slowdown resulting from the coronavirus pandemic.

The timeline for S-Reits to distribute at least 90 per cent of their taxable income will be extended from three months to 12 (after the end of financial year 2020) to qualify for tax transparency.

Tax transparency means an S-Reit is not taxed on income distributed to its unitholders.

This extension is only applicable for distributions made from taxable income that is derived by an S-Reit during the 2020 financial year.

An S-Reit with a financial year ended on March 31 will now have until March 31, 2021, to distribute at least 90 per cent of its taxable income derived in the 2020 year.

Those with financial years ended on Dec 31 will have until Dec 31, 2021, to make their 2020 distributions to unitholders.

S-Reits typically distribute the bulk of their income to unitholders so they tend to hold lower cash reserves. The extension will give S-Reits more flexibility to manage their cash flows.

The Inland Revenue Authority of Singapore will provide more details of the change by early May.

Another measure involves raising the leverage limit for S-Reits from 45 per cent to 50 per cent.

This takes immediate effect and will give them greater flexibility to manage their capital structure, said the Monetary Authority of Singapore (MAS).

Mr Chew Sutat, head of global sales and origination at the Singapore Exchange, noted: “The raised leverage limit for S-Reits is extremely timely for managing capital structure in the short term, but also sets S-Reits up for long-term success by being more competitive.

“This, together with the enhanced share issue limit, makes equity fundraising much easier for S-Reits and allows them additional debt headroom.”

The MAS will also defer implementing a new minimum interest coverage ratio requirement to January 1, 2022 – another move to lessen the impact of the pandemic on earnings and cash flows.

The higher leverage limit and the enhanced share issue limit announced by SGX RegCo last week will allow S-Reits to have continued access to different funding channels, including borrowing from banks, issuing bonds and raising equity.

S-Reits will have to disclose their leverage ratios and interest coverage ratios in annual reports and interim financial results.

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