Risks for Singapore-listed real estate investment trusts (SREITs) will increase in 2016 because weak economic fundamentals will weigh on demand while new supply is added into most sectors, Fitch Ratings said in a report released on Monday (23 Nov).
The agency expects SREITs with stronger balance sheets to become more acquisitive in 2016 as they try to boost earnings growth by capitalising on lower asset valuations. Sector leverage – as measured by debt to total assets – is likely to increase in 2016 as a result, it added.
On hotel REITs, Fitch said earnings will likely continue declining next year, but at a slower pace, as visitor arrivals into Singapore is expected to recover. Nevertheless growth in hotel room supply in Singapore will continue to outpace demand, leaving operating conditions challenging for the sector.
“We expect ratings of CDL Hospitality Trust (BBB-) and Far East Hospitality Trust (FEHT, BBB-) to remain stable, supported by strong balance sheets, and around 40-50 per cent of income stemming from fixed rent,” Fitch said.
Other hospitality REITs considered in the report include Ascendas Hospitality Trust and OUE Hospitality Trust.
As for REITs that own industrial property, Fitch said pressure on earnings will increase in 2016 due to the weak global economic climate.
“We expect lower-specification industrial assets, such as warehouses and multi-user factories, to see weaker rental reversions than for higher-specification assets, such as business parks. The demand for business parks is stronger, and a significant part of the new supply is pre-leased,” it said.
Singapore-listed industrial trusts include Ascendas REIT, Mapletree Industrial Trust and VIVA Industrial Trust.
Fitch added that the strong performance of healthcare SREITs is likely to continue in 2016, supported by robust demand for medical services and an ageing population in Asia. Healthcare SREITs’ long-term lease structures with a high degree of rental protection and their high proportion of fixed-rate debt will also support earnings growth, it said.
Source : Channel NewsAsia – 23 Nov 2015