Singapore REITs feeling credit squeeze

The credit crunch and a soft property market are putting the squeeze on Singapore property trusts, according to analysts. They expect more cash-strapped REITs to seek funding through rights issues in the coming months.

Analysts added that some three to four smaller players may end up being absorbed by their bigger counterparts. There are currently 21 REITs listed on the Singapore Exchange (SGX).

Banks are now not as open as before to Singapore REITs seeking funds. Like CapitaMall Trust (CMT), more REITs may want to seek new capital from unit-holders instead. CMT recently launched a rights issue to help pay off S$956 million worth of debt.

But analysts said this option may only work for those REITs which have strong parentage – such as those linked to Keppel Group and CapitaLand.

“There are a number of REITs which do not enjoy such strengths in terms of sponsorship, assets quality and strengths, or relationships with banks. The share prices of those have dropped so far that to do a rights offering in order to raise capital is not an option,” said Stephen Finch, CEO of ARA Strategic Capital.

Analysts warned that REITs with such fundraising plans should move quickly.

“Liquidity will dry up unless there are some positive news. I don’t see equity holders or shareholders being willing to part with so much money. As investors, they would rather sell and get their monies out,” said Kathleen Lee, VP & senior analyst of Corporate Finance at Moody’s.

Short of selling their assets, REITs unable to raise the cash may end up being taken over.

Analysts also expect yields for industrial and office REITs to be especially under pressure, with the economy in recession and rental rates declining. On the other hand, REITs with suburban malls are doing better, as retail sales in these segments are showing resilience.

Observers do not expect a Singapore REIT to crash out of the market before some form of intervention, like acquisition, takes place. But they said the current crisis will be a learning lesson for future REITs to be better managed and capitalised.

Source : Channel NewsAsia – 27 Mar 2009

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