Singapore’s real estate investment trusts (S-REITs) are well placed to weather tight operating conditions, according to a recently published report by Standard & Poor’s Ratings Services.
The report, titled Why Singapore REITs Can Survive Their Financial Fitness Test, said that the outlook for Singapore’s commercial-leasing segment is becoming more challenging and the funding environment is likely to become more volatile over the next two years. But the S-REITs appear to have sufficient flexibility to overcome a test of their financial management.
“In our base-case scenario, rent declines and possible higher financing costs will have only a modest impact on the credit profiles of the eight S-REITs that we rate,” said Standard & Poor’s credit analyst Wee Khim Loy. “The trusts have increased their financial flexibility and somewhat diversified their funding sources.”
The report warns that dislocation in the credit markets may still cause significant financial stress because the trusts continue to rely on bank funding. Also, leverage levels of most office REITs could become weak for current ratings if property values decline by up to 10 per cent. This scenario could happen if the Singapore economy falls into recession and leasing demand remains weak for a protracted period.
The report addresses frequently asked questions on these issues, including Standard & Poor’s prognosis for the sector over the next 12 months.
“We maintain a negative outlook for the office segment and a stable outlook for industrial and retail. Most of the issuers that we rate are anchored in the investment-grade category, reflecting the trusts’ stable cash flows from leasing activity,” said Ms Loy.
Source : Today – 2 Aug 2012