Interest Coverage Ratio for Reits

[Sorros88]

Hi there,

Can I check which is your preferred method for calculating interest coverage ratio for Reits?

There seem to be a few methods used such as using the Net Property Income, Funds from Operations (FFO) and Adjusted Funds from Operations (AFFO) as the numerator.

Also, from what I have read, the average spread for the S Reit index yield to 10 yrs sgd bond has been around 4 percent since 2002 (Do correct me if I am wrong). Do you all have an idea of the approximate standard deviation for this spread since 2002? Also, where can we find information for the recent average yield of the S reit index if it is available?

Thanks.

 

[Research Department]

Hi there,

Thank you for your question.

We use a range of ratios to measure a REIT’s ability to meet its debt obligations. For the interest coverage ratio, we traditionally look at the earnings before interest and tax (EBIT).

It would perhaps be more meaningful if you look at the yield spreads post the global financial crisis (2010 onwards) instead. Spreads since then have averaged at 3.6%, with +/- 1SD at 4.2% and 3.0% respectively. Current yield spread stands at 2.8%.

– Tara Wong, Investment Analyst

[Author]

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