REITs eye more equity fundraising deals as debt limits kick in

But good acquisitions are hard to come by.

REITs will be pushed to explore more equity financing options such as rights issuance or private placement exercises in order to fund their acquisitions, according to a report by OCBC.

Issuing new shares to fund acquisitions in light of rising gearing levels. The Monetary Authority of Singapore’s new gearing ratio of 45% will come into effect on January 2016.

“REIT Managers would want to provide some buffer to this and hence would likely only allow their leverage ratios to cross slightly above the 40% mark, in our view,” OCBC said.

“This would make it tougher for REITs to find DPU accretive transactions, as the cost of equity is inherently higher than the cost of debt. Given the difficulty in sourcing for attractive acquisition targets in Singapore, REITs will seek to continue their expansion overseas, with Australia expected to remain an acquisition hotspot next year, aided by its institutionalised and transparent market, coupled with cheaper onshore funding options and weaker AUD as compared to previous year,” OCBC noted.

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