Bangkok--22 Jan--Moody's
Moody's Investors Service maintains a negative rating outlook for Singapore's real estate investment trusts (S-REITs) over the next 12-18 months.
In a new report, Moody's says the negative outlook reflects (1) S-REITs' continued refinancing risk; (2) prospects of further weakening in the S-REITs' operating environment as Singapore's recession deepens; (3) risk of asset devaluations and reduced expectations for rentals; and (4) higher cost of refinanced debts.
Kathleen Lee, a Moody's vice president and lead author of the report, says, "The prospect of asset value declines and lower rental income will put pressure on S-REITs' credit profiles at a time of already-increased refinancing risk." She adds, "Over half of the 11 rated S-REITs have significant refinancing requirements in 2009, but some funding sources such as the markets for equity and commercial mortgage-backed securities have remained highly problematic since 2007."
Lee notes that, in this environment, those S-REITs with a high proportion of short-term debt to total liabilities and limited access to bank and debt markets will face the most pressure on their rating. She says, "This heightened risk to ratings is especially prevalent for those S-REITs that lack the support of a strong REIT sponsor."
Peter Choy, a contributor to the report and a Moody's senior credit officer, says, "Expected, large amounts of new supply at a time of deteriorating market conditions will inevitably result in lower-than-previously-anticipated rental rates, higher vacancies, and reduced asset values, which will increase S-REITs' leverage and add to downward pressure on some ratings."
However, he notes, "Most rated S-REITs have relatively sound underlying fundamentals, supported by good-quality assets, high occupancy rates, and well-diversified tenants. Those with good support from sponsors are also likely to have better access to the market if the need for equity recapitalizations increases in 2009".
The report is entitled "Singapore Real Estate Investment Trusts (S-REITs): A weakening operating environment and deteriorating credit markets weigh on sector". It is available at www.moodys.com.
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Singapore
Kathleen Lee
Vice President - Senior Analyst
Corporate Finance Group
Moody's Singapore Pte Ltd.
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Singapore
Tony Tsai
Senior Vice President
Corporate Finance Group
Moody's Singapore Pte Ltd.
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SUBSCRIBERS: (65) 6398-8308