SINGAPORE - The outlook of Singapore Real Estate Investment Trusts (S-Reits) remains positive despite the softer demand and rising supply, credit rating agency Moody's said.
S-Reits' earnings will maintain their healthy growth for at least another year on the back of previous acquisitions, Moody's said in a report issued on Wednesday (Oct 7).
"The stable outlook reflects our expectation that a larger asset base resulting from acquisitions in 2014-15 will drive six to nine per cent growth in aggregate annual EBITDA (earnings before interest, tax, depreciation and amortization) of our 19 rated S-Reits over the next 12 to 18 months," said Moody's.
"While we expect overall occupancy and rental rates for most property segments to be under pressure because of ample supply and soft demand, the rated S-Reits' well staggered lease expiry profile and proactive lease management approach to secure rentals in advance of tenancy expiry will limit the impact on EBIDTA," the report noted.
The challenging business environment may nonetheless weaken occupancy and rental rates for Reits with office, retail and industrial assets.
Against this backdrop, CapitaLand Commercial Trust, Keppel Reit and OUE Commercial Reit are most exposed as around two-thirds of their portfolio comprise office space in the central business district.
But these trusts will benefit from their track record of active lease management and attractive asset quality, Moody's said.
In the retail and mall sector, weak consumer demand and rising business costs will in turn hurt retailers' demand for retail space. A huge pipeline of new supply in the suburban areas may also put pressure on CapitaLand Mall Trust and Frasers Centrepoint Trust, but the impact on their occupancy rates will likely be limited as the supply is spread across different neighbourhoods.
The upcoming supply of new business parks and warehouses also looks set to outstrip demand growth in the industrial segment, with occupancy and rental rates likely impacted in the next 12 to 18 months.
But the oversupply situation will ease from 2017, and rental rates for business parks will remain resilient due to their pre-committed leases, Moody's added.
Meanwhile, S-Reits will be able to manage their refinancing risk at a time when interest rates are poised to rise.
Moody's said: "As of June 30 2015, CapitaLand Commercial Trust has S$1.2 billion of debt maturing over the next 12 to 18 months, the largest amount among the companies, but this is mitigated by its strong access to funding.
"Funding costs will increase in tandem with the rising interest rate environment, but S-Reits are insulated owing to their high proportion of fixed-rate debt."