The measures will provide relief to so-called S-REITs as the Asian city-state faces a severe economic slowdown resulting from the pandemic, according to a joint statement from the Inland Revenue Authority of Singapore, the Ministry of Finance and the Monetary Authority of Singapore.
S-REITs will have "greater flexibility to manage their cash flows and raise funds amid a challenging operating environment due to COVID-19," the agencies said in the statement, referring to the respiratory disease caused by the novel coronavirus.
To avoid being taxed on income distributed to unit holders, every S-REIT will now have until 12 months beyond the end of its 2020 fiscal year to distribute at least 90% of its taxable income. The usual deadline is three months after the year end.
The extension will apply only to distributions made from taxable income derived by S-REITs during fiscal year 2020, which means those with a fiscal year that ended March 31 will have until March 31, 2021, to distribute the bulk of their income. S-REITs typically disburse most of their income to unit holders and therefore tend to have lower cash reserves.
The revenue authority said it would provide more details about the change by early May.
Effective immediately, S-REITs' leverage limit will rise to 50% from 45%, affording the investment trusts greater flexibility to manage their capital structure and raise debt financing amid the pandemic's "challenging environment," the Monetary Authority of Singapore stated.
The agency also said it would defer to Jan. 1, 2022, implementation of a new minimum-interest coverage ratio requirement. In a public consultation in 2019, the monetary authority had proposed requiring S-REITs to have a minimum ratio of 2.5 times before they are allowed to increase their leverage beyond the then-prevailing 45% limit.
The higher leverage limit, along with a recently increased limit on share issues for many publicly traded companies, will give S-REITs continued access to various funding channels, including bank loans, bond issues and equity-raising, the monetary authority said. Responding to the pandemic, Singapore's financial market regulator announced on April 8 that it would provisionally allow companies listed on the exchange's main board to issue prorated shares and convertible securities equal to 100% of share capital compared with 50% previously.
To give investors timely information about the financial position of S-REITs and the impact of higher leverage on their risk profiles, the monetary authority said it would require the trusts to disclose their leverage and interest coverage ratios in annual reports and interim financial results.
Notwithstanding the higher leverage limit, the authority said it expected S-REIT managers to carefully assess their ability to service financial obligations before taking on additional debt.
Singapore, after moving quickly to control initial outbreaks of COVID-19, had confirmed 728 new cases of the disease as of Thursday — a 20% increase from the previous day, according to the Singapore Health Ministry. The city-state has now reported 4,427 cases of COVID-19, including 10 deaths.
Representatives of the agencies didn't immediately respond to requests for comment.
--Editing by Joyce Laskowski.
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