Increasing use of debt by Reits pose risks to sector: Fitch

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Increasing use of debt by Reits pose risks to sector: Fitch

Post by singaporeproperty » Thu Apr 18, 2013 5:01 pm

The increasing use of debt, or leverage, in Singapore Real Estate Investment Trust (S-Reit) funding mixes could pose risks to the sector, said Fitch Ratings.

According to a report on the S-Reit sector by the ratings agency, these risks include refinancing risk and exposure to interest-rate shocks.

Fitch added that “the competition for assets that results from the use of leverage will put downward pressure on underlying asset yields and further exacerbate this trend”.

This increasing use of leverage is fuelled by the availability of low-cost debt and the demand for dividend distributions in a low-yield environment.

Fitch expects the operating risk profile of the S-Reit sector to remain stable over the next few years, citing stringent regulation by the Monetary Authority of Singapore.

MAS requires 75 percent of S-Reit portfolios to be income generating.

The sector’s revenues and profitability are also “are underpinned by the strong economic fundamentals of Singapore”.

However, Fitch noted that the rapid pace of new supply and planned supply is outstripping the demand for space.

This could raise vacancy levels and, lower asset yields, and increase the risk profile of S-Reits in 2013.

Source : Channel NewsAsia – 18 Mar 2013

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