Real estate investment trusts in Singapore (S-Reits) will likely continue acquiring assets this year, as funding is still available and interest rates remain low, said Moody’s Investors Service.
”S-Reits will use their well-capitalised balance sheets to continue acquisitive growth strategies this year amid an environment of low interest rates,” said Alvin Tan, Associate Analyst at Moody’s.
Some S-Reits sponsored by property developers will also gain access to a pipeline of properties, added Mr. Tan. Moody’s expects that interest rates will remain low this year, making it attractive for S-Reits to borrow more. However, they will likely remain conservative considering their experience with strained balance sheets during the global recession.
Any increase in interest rates will boost the acquisition and refinancing costs of S-Reits and affect their credit profiles. “Trusts must manage the risk of any upward spike in rates by balancing their debt maturities, proper hedging and using an appropriate debt/equity mix to fund acquisitions,” said Mr. Tan.
The majority of S-Reits had gearings of 30 to 40 percent, which should increase with further purchases, but stay in their long-term targets of 40 to 50 percent.
A DBS Vickers analysis last month showed that the S-Reit sector acquired approximately S$7 billion worth of assets in Singapore and overseas in 2010.
Various S-Reits have announced plans for further expansion this year. Parkway Life Reit, for instance, recently revealed its acquisition of a nursing home in Japan for about S$8.9 million, while Frasers Centrepoint Trust is planning to buy Bedok Point.
Moody’s is maintaining its “stable” rating on the S-Reit sector considering the ample liquidity within the market, rising rents and high occupancies this year.