Singapore real estate investment trusts (REITs) will be allowed to take on more development under new rules that also affect their use of debt.
The development limit of a REIT will be increased from 10% to 25%, the Monetary Authority of Singapore (MAS) has revealed.
MAS said it had refined proposals to strengthen the industry – the third biggest REIT market in Asia – in response to industry feedback.
The leverage limit imposed on REITs has also been changed from a two-tier arrangement to a single 45% limit. Previously, REITs without credit ratings could borrow up to 35%, while those with credit ratings could leverage up to 60%.
Lee Boon Ngiap, assistant managing director, capital markets at MAS, said the new rules reflect a “balanced approach to enhancing safeguards for investors and unitholders, while facilitating the growth of a vibrant REIT market”.
MAS said the changes will provide Singapore’s REITs – first introduced in 2002 – with “greater operational flexibility” to rejuvenate maturing portfolios.
Moody’s Investors Service said the changes are “credit positive for the industry as they will foster financial discipline, enhance corporate government and strengthen investor confidence”.
“Notably, a lower borrowing limit for rated S-REITs will ensure the REITs maintain a prudent approach when funding expansion plans and so reduce potential losses to creditors,” said Jacintha Poh, a Moody’s assistant vice president in a note.
Other changes include the condition that at least half of a REIT manager’s board of directors must be independent directors if unitholders do not have the right to appoint them.
Managers will also be required to disclose their remuneration policy and procedures in annual reports, while MAS is also looking to increase transparency of fee structure.