In a latest special report, Fitch Ratings noted that most of the Singapore-listed real estate investment trusts (S-REITs), which are benefitted from the recent recovery of the share price, have refinanced all their maturing debt obligations for this year. However, there are still questions that remain regarding the financial flexibility as well as the refinancing ability of the S-REITs, said the ratings agency.
For the said sector, Fitch tries to maintain its overall negative outlook, owing it to the expected negative performance of the asset. However, the industry sub-sector is also expected to drive the sector’s credit performance; therefore, different outlooks may arise from individual S-REITs.
The special report also noted that 12 out of the 20 S-REITs, wherein information was made available for the public, reported a decrease on their total assets this June of 2009, from last year. One particular group is the office S-REITs, which reported a 4.2 percent drop in their total assets for the year that ended June 2009, in comparison to the increase of around 54 percent in the previous year. In this same period, the retail S-REITs gained an additional 1.5 percent to the total assets.
Fitch noted that S-REITs, like those property-related companies around the world, are affected by the worldwide financial crisis.
“A limited availability of debt financing and stock price corrections have forced S-REITs to restrict their previous aggressive asset acquisition programmes and concentrate on survival and tenant retention in a difficult market”, the report noted.
However, S-REITs came up with a response to the changing dynamics of the market by obtaining advance bank loans intended for refinancing and by reducing their acquisition plans and capex as well as the development pipelines. Also, some S-REITs were successful in issuing equity. Though, these steps are viewed as positive based on a ratings’ point of view, they still don’t address the other aspects regarding liquidity profile and debt structure that continue to be among the concerns of the Fitch Ratings.
“In addition to dealing with a worsening asset performance, S-REITs are expected to tread cautiously in terms of their debt maturity profiles and liquidity provisions”, the report said. “S-REITs will also need to improve their liquidity profiles as they come out of the crisis, to meet their debt refinancing requirements in the short to medium term”.
Fitch also said that the liquidity profiles of S-REITs are affected by their requirements in distributing the major part of their earnings. This, together with the concentrated profiles of their debt maturity, can considerably increase the risk of refinancing around S-REITs.
Looking up ahead, S-REITs, which are expected to keep on their moderate leverage standpoint, are now focused in the enhancement of their capital markets scope. “They are likely to concentrate more on improving their debt maturity profiles, and expanding their relationships across banks to improve access to the bank loans’ market”, stated Fitch.