17 April 2020

On 16 April 2020, the Ministry of Finance (“MOF”), the Inland Revenue Authority of Singapore (“IRAS”), and the Monetary Authority of Singapore (“MAS”) issued a media release announcing 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 the challenging operating environment posed by the Covid-19 situation. These measures comprise an increase in the leverage limit and a deferral of the implementation of a new minimum interest coverage ratio (“ICR”) requirement by MAS, an extension of the deadline for S-REITs’ distribution of taxable income by MOF and IRAS, as well as allowing for an S-REIT to appoint a valuer for a third consecutive year.

The revised leverage limit and the new provision on the ICR requirement were reflected in a revised Code on Collective Investment Schemes (“Code”, and the amendments made to the Code, “Code Amendments”) issued on the same day. The Code was also amended to allow an S-REIT to appoint a valuer to value the same property for a third consecutive financial year if certain conditions are met.

Higher leverage limit and deferral of interest coverage requirement

To provide S-REITs greater flexibility to manage their capital structure amid the challenging environment created by the Covid-19 pandemic, MAS has raised the leverage limit for S-REITs from 45% to 50% of the S-REITs’ deposited property with immediate effect.

In addition, MAS will defer to 1 January 2022 the implementation of the new minimum ICR requirement, such that from 1 January 2022, the aggregate leverage of an S-REIT may exceed 45% up to 50% of the S-REIT’s deposited property if the S-REIT has a minimum Adjusted-ICR of 2.5 times. The Adjusted-ICR takes into account, among others, interest payment obligations from new borrowings and distributions on hybrid securities (such as perpetual securities). The introduction of the ICR as a secondary metric will provide investors with greater transparency and assurance on the ability of an S-REIT to service its debt obligations. The implementation of the ICR requirement will now be deferred as S-REITs’ ICRs will likely come under pressure in the near term due to the negative impact of the Covid-19 pandemic on their earnings and cash flows.

The higher leverage limit, along with the enhanced share issue limit announced by Singapore Exchange Regulation on 8 April 2020, will allow S-REITs to have continued access to different funding channels, including borrowing from banks, issuing bonds and raising equity.

For the financial year ending before 1 January 2022, MAS will require S-REITs to disclose their leverage ratios and ICRs in their annual reports and interim financial results (i.e. the quarterly financial results or, as the case may be, the semi-annual financial results) announcements. For the financial year ending on or after 1 January 2022, MAS will additionally require S-REITs to disclose their Adjusted-ICRs. This is to provide investors with timely information on the financial position of S-REITs and the impact of higher leverage on their risk profiles.

Notwithstanding the higher leverage limit, MAS expects S-REIT managers to carefully assess the S-REITs’ ability to service financial obligations before taking on additional debt.

Extension of permissible period for distribution of taxable income

MOF and IRAS will extend the timeline for S-REITs to distribute at least 90% of their taxable income from three months to 12 months (after the end of Financial Year (“FY”) 2020) to qualify for tax transparency. This extension is only applicable for distributions made from taxable income that is derived by an S-REIT during FY2020. For example, to avail of 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.

As S-REITs typically distribute the bulk of their income to unitholders and tend to hold lower cash reserves, the extension will give S-REITs more flexibility to manage their cash flows.

IRAS will provide further details of the change by early May 2020.

Appointment of valuer to value same property for third consecutive financial year

Under the Code, a full valuation of each of the S-REIT’s real estate assets should be conducted by a valuer at least once a financial year. Previously, the Code provided that a valuer should not value the same property for more than two consecutive financial years. Following the Code Amendments, an S-REIT may now appoint a valuer to value the same property for a third consecutive financial year if that financial year ends on or before 31 December 2020 and this fact is disclosed in the S-REIT’s annual report.

Reference materials

The following materials are available from the MAS website www.mas.gov.sg:

Further information

Allen & Gledhill has a Covid-19 Resource Centre on our website www.allenandgledhill.com that contains knowhow and materials on legal and regulatory aspects of the Covid-19 crisis.

In addition, we have a cross-disciplinary Covid-19 Legal Task Force consisting of Partners across various practice areas to provide rapid assistance. Should you have any queries, please do not hesitate to get in touch with us at covid19taskforce@allenandgledhill.com.


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