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REIT Watch - Five S-Reits With the Lowest Gearing Ratios

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Five S-Reits with the lowest gearing ratios

On average, S-Reits have maintained an average gearing ratio of 36.8 per cent, based on latest company filings which were extracted in mid-August 2022. The 5 S-Reits with the lowest gearing ratios reported are Digital Core Reit, Sasseur Reit, Frasers Logistics & Commercial Trust, SPH Reit, and IReit Global. 

Based on the sector’s average gearing ratio of 36.8 per cent and regulatory limit of 50 per cent, this translates into approximately S$22.6 billion (based on Bloomberg data for total assets multiplied by company-reported gearing ratio) of potential debt headroom for the sector, to fund capital-intensive acquisitions.

  • Digital Core Reit reported 25.7 per cent aggregated leverage as of Jun 30, 2022 and estimates a debt headroom of US$194 million at 35 per cent aggregated leverage. The Reit expects to make its first distribution of 2.37 US cents to unitholders on Sep 28 and is prepared to embark on its maiden acquisition of data centres in Frankfurt, Dallas, and Chicago. The acquisition is expected to be DPU-accretive and may be funded with debt. An EGM is expected to be scheduled in the third quarter.
  • Sasseur Reit has consistently maintained one of lowest gearing ratios among S-Reits at 26.5 per cent aggregated leverage as of Jun 30, 2022 and estimates a debt headroom of S$904.7 million based on the regulatory limit of 50 per cent. With onshore and offshore debts of approximately S$510.9 million maturing in March 2023, the Reit aims to complete its debt refinancing exercise by end 2022.
  • Frasers Logistics & Commercial Trust reported aggregate leverage of 29.2 per cent as of Jun 30, 2022, down 3.9 percentage points from a quarter ago. Based on the regulatory limit of 50 per cent, the Reit has an estimated debt headroom of S$2,877 million. The Reit’s logistics and industrial portfolio maintained full occupancy with no expiries in Q4FY22 while the commercial portfolio reported occupancy rate of 91.3 per cent. The Reit expects the overall operating environment to further improve with strong tenant activity observed, as countries progressively return to normalcy.
  • SPH Reit reported 30.1 per cent gearing as of May 31, 2022 and updated that this provides debt headroom flexibility with access to additional liquidity from S$225 million of undrawn revolving credit facility lines. The Reit maintained a high occupancy rate of 97.6 per cent. The Reit’s year-to-date Q3 gross revenue registered an increase of 0.9 per cent year on year to S$211.6 million and declared Q3FY22 DPU of 1.45 cents, increasing 5.1 per cent year on year.
  • IReit Global’s aggregate leverage improved from 32.1 per cent as of Dec 31, 2021 to 30.8 per cent as of Jun 30, 2022. This was mainly driven by the 6-year lease extension for 100 per cent of Bonn Campus and a 12-year major new lease for approximately 5,300 sqm data centre space at Sant Cugat Green in Q2 2022. This in turn contributed to the increase in the Reit’s portfolio valuation to surpass the 1.0 billion euro mark.

Gearing ratio, also known as aggregated leverage, is the ratio of a Reit’s total debt to its total assets. This is a metric closely monitored by investors and is often used to assess a Reit’s financial leverage.

A lower gearing ratio could point to greater capacity to undertake more debt when needed for future acquisitions while a higher gearing ratio could lead to credit concerns, especially during economic downturns.

S-Reits have a regulatory leverage limit of 50 per cent, imposed by the Monetary Authority of Singapore (MAS). This limit was increased from 45 per cent in April 2020, to provide S-Reits with more flexibility to manage their capital structure amid the challenging environment from the Covid-19 pandemic. 

REIT Watch is a weekly column on The Business Times, read the original version

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