REITs: Raising gearing limit 'seen as timely'

KUALA LUMPUR (Aug 15): The temporary increase of the gearing limit for real estate investment trusts (REITs) by the Securities Commission Malaysia (SC) “is seen as timely for the sector”, The Edge Malaysia reported recently.

Earlier this week, the SC announced that the gearing limit is to be “immediately increased to 60%, effective until Dec 31, 2022”.

The weekly stated that retail and hospitality REITs “have suffered from the impact of the Covid-19” especially when the Movement Control Order (MCO) was enforced from March 18 to May 4.

Retail REITs also helped out tenants with rental rebates while “the hotel segment suffered a steep decline in room occupancy”.

“The increase in gearing limit for REITs from 50% to 60% is timely as REITs are facing potential devaluation of properties in the coming quarters as valuers may peg lower values for shopping malls and hotels,” MIDF analyst Jessica Low told the publication.

She explained that valuers may value “properties lower this year due to lower income anticipated, especially retail malls and hotels”.

With the gearing limit being calculated by dividing total borrowings by total assets, “even if borrowings remain unchanged, the REITs’ gearing could trend higher as a result of devalued properties”.

So, the increase of the gearing ceiling temporarily allowed by the SC could “help REITs from exceeding the threshold”.

PublicInvest Research said that such a temporary increase would help REITs, “which might see their assets being written down due to the current market conditions”.

Analysts are on the whole “neutral” on the sector “as they believe that it lacks catalysts in the midst of the challenging environment”, said the weekly.

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Read the full report in this week’s The Edge Malaysia