[Note – This post relates mainly to Singaporean finance. Your country’s system may differ.]
I had a tough time because I chanced upon Dr Wealth’s (formerly BigFatPurse) entry, REITS Glossary: Essential Terms All REITs Investors Must Know (3 Nov 2016).
It lists TWO ways to calculate gearing:
- Gearing (Debt-to-Equity Ratio) = Total Debt ÷ Total Equity
- Gearing (Debt Ratio) = Total Debt ÷ Total Assets
Thus I sought quite a few places, without success I must add, to verify which formula one S-REIT (Singapore REIT) used in their Annual Report… I attempted calculations based on the documents but did not arrive at full accuracy.
The (rather readable) volume, International REITs: how to invest overseas and build an international portfolio / Kaiwen Leong, Wenyou Tan and Elaine Leong. Singapore. (2014), uses Borrowings from the Non-Current Liabilities section of the sample/fictional Balance Sheet (p.48-50) as Total Debt. It excludes Payables & Accruals and Long-Term Liabilities.
Well, it seems an answer is found. No. 2 is the yardstick formula. This is based on further cross referencing:
- “…the leverage ratios of the 17 S-REITs that Moody’s rates, as measured by total adjusted debt to total deposited assets, were all below 45 per cent as of the end of June.” [MAS proposals to tighten S-REIT rules are credit positive: Moody’s. (17 Oct 2014). http://www.todayonline.com/business/mas-proposals-tighten-s-reit-rules-are-credit-positive-moodys. TODAY.]
- “For a REIT, gearing ratio is the total borrowings (both short-term and long-term) divided by total assets.” [Suhan P. (23 Aug 2013). What is Gearing Ratio? https://www.fool.sg/2013/08/23/what-is-gearing-ratio/. The Motley Fool. Singapore.]
Some differences… but a closure at least – for now.