SREITs – BT

S-Reits likely to continue buying assets: Moody’s

But it calls for guard against risk of rising rates

MOODY’S Investors Service expects real estate investment trusts in Singapore (S-Reits) to continue purchasing assets this year as interest rates stay low and funding remains available.

But the credit rating agency also reminds Reits to guard against the risk of rising rates through hedging and other strategies.

‘S-Reits will use their well-capitalised balance sheets to continue acquisitive growth strategies this year amid an environment of low interest rates,’ said Moody’s associate analyst Alvin Tan in a report.

Some S-Reits, sponsored by developers, will also have access to a pipeline of assets, he added. Moody’s foresees interest rates staying low this year, and this makes it attractive for S-Reits to borrow more. Nevertheless, given the Reits’ experience with strained balance sheets during the global financial crisis, they are likely to remain conservative.

Also, any rise in interest rates will increase S-Reits’ acquisition and refinancing costs and hurt 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,’ Mr Tan said.

He noted that most S-Reits had gearings of 30-40 per cent, which should rise with further acquisitions, but remain within their long-term targets of 40-45 per cent.

S-Reits went on a shopping spree last year as growth returned to the agenda with the sharp economic recovery. According to a DBS Vickers analysis in December, the sector bought around $7 billion worth of properties in Singapore and abroad in the year.

Several S-Reits have announced plans for further growth this year. For instance, Frasers Centrepoint Trust is looking to acquire Bedok Point while Parkway Life Reit recently announced the acquisition of a nursing home in Japan for around $8.9 million.

Moody’s is keeping its ‘stable’ rating on the S-Reit sector given ample liquidity in the market, high occupancies and rising rents this year.