MORE gloomy news has come in for the property sector, this time for Singapore-listed real estate investment trusts (S-Reits).
They have been stamped with a negative outlook by credit ratings agency Moody's Investors Service. While the trusts' fundamentals remain solid, with their properties enjoying high occupancies and strong demand, Moody's sees cloudy skies ahead for them in the next 12 to 18 months.
This means it thinks there are negative influences that may lead to a ratings review within that time. These ratings gauge a company's ability to repay its debts.
Moody's cited adverse sentiment and tighter liquidity in the market as the reasons for its change in outlook, saying these factors make it tougher for Reits to get funds just when they are most needed.
Several Reits are reaching a stage where they need to refinance their debts, but they are finding it more difficult and expensive to borrow funds, Moody's said.
Despite this, some trusts have been forced to rely on bank loans to pay for acquisitions they have already committed to, it added.
This is also partly because the unit prices of many trusts have tumbled in recent months, making equity funding - raising money by issuing more units - an unattractive alternative.
'Because S-Reits retain little cash, the primary source of repayment tends to come from either new debt, asset sales or equity,' said Moody's in a report yesterday.
'When these markets tighten, this financial positioning exposes those Reits that have a high level of short-term debt and lack long-term, committed funding.'
Since January, Moody's has downgraded one Reit twice, put two others on review for a possible downgrade and issued negative outlooks for another three.
The latest negative outlook rating came in yesterday for CapitaMall Trust, after it said it would pay $840 million to buy The Atrium@Orchard office building.
Moody's has also given negative outlooks for Suntec Reit and Mapletree Logistics Trust because of financing pressures and high gearing, respectively.
The ratings agency downgraded Allco Commercial Real Estate Investment Trust in January and again in March on refinancing concerns.
CapitaCommercial Trust, which bought the 1 George Street office building for $1.2 billion in March, and Macquarie Meag Prime Reit, which owns stakes in the Wisma Atria and Ngee Ann City malls, are still on review and may be downgraded.
Moody's also said it was possible that smaller Reits would be merged with their bigger rivals in the coming months.
'Difficult access to funding and a diminished opportunity to grow will increase the likelihood of smaller Reits being acquired as the year proceeds,' it said.
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FINANCING SQUEEZE
'Because S-Reits retain little cash, the primary source of repayment tends to come from either new debt, asset sales or equity. When these markets tighten, this exposes those Reits that have a high level of short-term debt and lack long-term funding.'
MOODY'S, on the risks some property trusts are facing
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