REITS

REITS: CIMB argues that the 45% leverage from new REITS framework proposed by MAS could do more harm than good. This could potentially prevent SREITS from overleveraging, which would be positive for the sector broadly. That said, the house cautions that this would be ignoring: i) the safety buffer between the current leverage and the maximum allowable leverage limit; to account for the volatility of the property market and to ensure that bank covenants are not breached, and ii) further debt headroom required for potential acquisition of assets, AEIs and redevelopment.\ To make up for the abovementioned factors, highly leveraged REITS will have to deleverage via options such as equity or hybrid securities (which are classified as non-debt) which could raise cost of funds. Future acquisitions will also be financed by more equity than debt, consequently posing risk for lower DPU yields. If the 45% leverage limit is implemented, REITs with higher leverage ratios such as KREIT, MCT, ART, FCOT and OUEC may suffer more. Lower leveraged REITS like FCT, CCT and CDL-HT may be less impeded as these REITS may be able to tap their sponsors for development projects. However, the returns from these projects may be lower as projects could be funded via higher cost financing vs debt