Standard & Poor’s Ratings Services puts the spotlight on Singapore’s real estate investment trusts (REITs) in this commentary titled “CreditFAQ: Why Singapore REITs Can Survive Their Financial Fitness Test.” Like REITs elsewhere around the globe, the report notes that Singapore REITs, or S-REITs, face a series of possible headwinds. These include declines in rent and occupancy in the office space segment, and higher funding costs. Also, leverage levels of most office REITs may become weak for the current ratings levels if property values decline by up to 10%. This scenario may happen if the Singapore economy falls into recession and leasing demand remains weak for a protracted period.
It’s not all bad news, however. The report concludes that S-REITs, in general, appear to have sufficient flexibility to overcome the expected difficulties. According to our base-case scenario, rent declines and possible higher financing costs will have only a modest impact on the credit profiles of the eight S-REITs rated by Standard & Poor’s. The trusts have increased their financial flexibility and somewhat diversified their funding sources. What’s more, most of the issuers that we rate are anchored in the investment-grade category, reflecting the trusts’ stable cash flows from leasing activity.
To see the report, “CreditFAQ: Why Singapore REITs Can Survive Their Financial Fitness Test,” click here.