New Measures to Help REITs Navigate Operating Challenges Posed by COVID-19
16 Apr 2020
The Ministry of Finance (MOF), the Inland Revenue Authority of
Singapore (IRAS), and the Monetary Authority of Singapore (MAS) today announced
new measures to provide real estate investment trusts listed on the Singapore
Exchange (S-REITs) with greater flexibility to manage their cash flows and
raise funds amid a challenging operating environment due to COVID-19. These comprise an extension of the deadline
for distribution of taxable income by MOF and IRAS, and a raising of the
leverage limit and deferment of new regulatory requirements by MAS.
Extension of Permissable Period for Distribution of Taxable Income
2. MOF and IRAS will extend the
timeline for S-REITs to distribute at least 90% of their taxable income from 3
months to 12 months (after the end of Financial Year (FY) 2020) to qualify for
tax transparency1.
This extension is only applicable for distributions made from taxable income
that is derived by an S-REIT during FY2020. For example, to avail to the tax
transparency treatment for FY2020 taxable income, S-REITs with FY2020 ending 31
March 2020 and 31 December 2020 will have up to 31 March 2021 and 31 December
2021 respectively, to distribute to their unitholders at least 90% of their
taxable income derived in FY2020.
3. The extension will
give S-REITs more flexibility to manage their cash flows. As S-REITs typically distribute the bulk of
their income to unitholders, they tend to hold lower cash reserves.
4. IRAS will provide
further details of the change by early May 2020.
Higher Leverage Limit and Deferral of Interest Coverage Requirement
5. MAS will raise with immediate
effect the leverage limit for S-REITS from 45% to 50%, to provide S-REITs
greater flexibility to manage their capital structure and to raise debt
financing amid the challenging environment created by the COVID-19 pandemic.
6. MAS
will defer to 1 January 2022 the implementation of a new minimum interest
coverage ratio (ICR) requirement. In its
public consultation last year 2.
MAS had proposed to require S-REITs to have a minimum ICR of 2.5 times before
they are allowed to increase their leverage to beyond the prevailing 45% limit
(up to 50%). The implementation of the ICR requirement will now be deferred as
S-REITs’ ICRs are likely to come under pressure in the near term due to the
negative impact of the COVID-19 pandemic on their earnings and cashflows.
7. The
higher leverage limit, together with the enhanced share issue limit announced
by SGX RegCo last week 3,
will allow S-REITs to have continued access to different funding channels,
including borrowing from banks, issuing bonds, and raising equity.
8. To provide investors with timely information about the
financial position of S-REITs and the impact of higher leverage on their risk
profiles, MAS will require S-REITs to disclose their leverage ratios and ICRs
in annual reports and interim financial results.
9. Notwithstanding the higher leverage limit, MAS expects S-REIT
managers to carefully assess their ability to service financial obligations
before taking on additional debt.
1 Under the
tax transparency treatment, an S-REIT is not taxed on its income that is
distributed to its unitholders.
2 On 2 July 2019,
MAS issued the Consultation
Paper on Proposed Amendments to the Requirements for REITs. MAS will release a
detailed response to the Consultation Paper in due course.
3 On 8 April 2020,
SGX RegCo announced that it would provisionally enable Mainboard issuers to
seek a general mandate for an issue of pro-rata shares and convertible
securities of up to 100% of its share capital (excluding treasury shares and
subsidiary holdings in each class) versus 50% previously. This is one of the
measures that SGX RegCo has, in consultation with MAS, introduced to support
listed issuers amid COVID-19. Please refer to SGX RegCo’s Press Release at this
link for more information.
Ministry of Finance
Inland Revenue Authority of Singapore
Monetary Authority of Singapore