The outlook for Singapore real estate investment trusts (S-Reits) remains positive despite the softer market demand and increasing supply, ratings agency Moody's said.
Reits will also be able to manage their refinancing risks amid the rising interest rate environment, given that most debt in the sector is locked in at fixed rates, it added in its report yesterday.
"The stable outlook reflects our expectation that a larger asset base... from acquisitions in 2014-15 will drive 6 to 9 per cent growth in aggregate annual earnings before interest, tax, depreciation and amortisation of our 19 rated S-Reits over the next 12 to 18 months."
Some S-Reits have bolstered their portfolio with acquisitions announced over the past year. CapitaLand Mall Trust snapped up Bedok Mall in July, after Ascendas Reit's move to acquire The Kendall at 50 Science Park in March.
Having a larger revenue-generating asset base will buffer the Reits' income as occupancy and rental rates come under pressure.
Moody's said: "We expect overall occupancy and rental rates to be broadly stable in 2015 but under pressure in 2016 because of ample supply and soft demand across most property segments.
"Hospitality Reits are most exposed under the challenging business conditions, with the office, retail and industrial Reits better insulated because of their well-staggered lease expiry profiles and proactive lease management."
Hospitality Reits will face lower tourist arrivals - down 2 per cent year-on-year in the first seven months this year. Far East Hospitality Trust may be squeezed on revenue owing to its large portfolio of hotels and serviced residences.
Other segments are less affected. Among office Reits, demand may slow as businesses temper their presence in the central business district due to economic uncertainties. CapitaLand Commercial Trust, Keppel Reit and OUE Commercial Reit are most exposed to the impact as around two-thirds of their portfolios comprise CBD office space.
But these trusts will not see a material decline in earnings, thanks to their track record of active lease management and attractive asset quality, Moody's said.
Retail is also facing an oversupply, with some 3.2 million sq ft of space due to be completed by 2017, most in the suburban and downtown core areas. A tougher business environment has also hurt retailers' rental demand.
However, Moody's does not expect CapitaLand Mall Trust and Frasers Centrepoint Trust - two Reits with the biggest exposure to suburban malls - to be materially impacted as the supply is spread across different neighbourhoods.
In the industrial segment, oversupply will ease from 2017, Moody's added, and rental rates for business parks will remain resilient owing to their pre-committed leases.
S-Reits will be able to manage their refinancing risk with interest rates poised to rise. Moody's said: "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."