Leverage Limit of REITs (Singapore)

Aggregate Leverage Limit (Revised 20 Oct 2005. Just for general info.)

9.1 Borrowings15 may be used for investment or redemption purposes. A property fund may mortgage its assets to secure such borrowings.

9.2 The total borrowings and deferred payments16 (together the “aggregate leverage”) of a property fund should not exceed 35% of the fund’s deposited property. The aggregate leverage of a property fund may exceed 35% of the fund’s deposited property (up to a maximum of 60%) only if a credit rating of the property fund from Fitch Inc., Moody’s or Standard and Poor’s is obtained and disclosed to the public. The property fund should continue to maintain and disclose a credit rating so long as its aggregate leverage exceeds 35% of the fund’s deposited property.

9.3 If borrowings are to be used to fund partly or wholly the purchase of a new property, the value of the deposited property used for determining the aggregate leverage may include the value of the new property that is being purchased, provided that:
(a) the borrowings are incurred on the same day as that on which the purchase of the property is completed; OR if the borrowings are incurred before the purchase of the property is completed, those borrowings are kept in a separate bank account that is established and kept by the property fund solely for the purpose of depositing such monies;
(b) the monies raised by such borrowings are utilised solely for the purchase of the property including related expenses such as stamp duties, legal fees and fees of experts and advisers (all of which must be determined on an arm’s length basis) and for no other purpose; and
(c) if borrowings are incurred before the new property is purchased and the manager subsequently becomes aware or ought reasonably to have become aware that the purchase will not take place, the manager must return the monies raised by such borrowings as soon as practicable.




9.4 The aggregate leverage limit is not considered to be breached if due to circumstances beyond the control of the manager the following occurs:
(a) a depreciation in the asset value of the property fund; or
(b) any redemption of units or payments made from the property fund. If the aggregate leverage limit is exceeded as a result of (a) or (b) above, the manager should not incur additional borrowings or enter into further deferred payment arrangements.

9.5 For the purpose of calculating the aggregate leverage to determine compliance with the aggregate leverage limit, if a property fund invests in real estate through shareholdings in unlisted SPVs, the aggregate leverage of all SPVs held by the property fund shall be aggregated on a proportionate basis based on the property fund’s share of each SPV. For the avoidance of doubt, the assets of such SPVs should also be aggregated on a proportionate basis based on the property fund’s share of each SPV.

9.6 An existing property fund with aggregate leverage exceeding 35% of the fund’s deposited property should comply with paragraph 9.2 by 20 April 2006.