[ET Net News Agency, 28 April 2020] REITs and landlords in Asia-Pacific will see rents
fall and vacancy rates tick up due to COVID-19's hit to shopping, business, and GDP. The
rating trend is negative, however financial buffers and flexibility will help top-rated
firms to weather the effect, according to a report S&P Global Ratings published today,
titled, "Will Asia's REITs Keep Their Angel Wings?"
"Real estate companies in Asia-Pacific will encounter significant operational challenges
and financial pressures this year. Monetary and fiscal actions, including generous
stimulus packages in some countries, will only soften the blow," said S&P's credit analyst
Esther Liu.
Although it's hard to over-generalize across the Asia-Pacific, given different stages
and magnitudes of the impact, we expect a 5%-10% overall drop in EBITDA for the rated
REITs in our region. This will undoubtedly strain credit profiles of the real estate
investment trusts.
Hotel REITs will take the brunt of the pain from social-distancing measures, followed by
retail REITs and landlords. The social-distancing measures, closure of shops, and
potential for corporates/retailers to obtain moratoriums on rent will likely weigh on
landlords' earnings.
Demand for logistics space will find support from a jump in e-commerce orders because of
store closures, but industrial REITs demand will depend on the extent to which individual
tenants' underlying product lines fall into discretionary categories.
Office REITs are more protected because they have longer-term tenancies and are less
consumer-driven.
Retail REITs in the region account for about 40% of our rated portfolio; about 30% are
office focused; industrial and logistic REITs account for less than 20%; and only a
handful specialize in hotels.
S&P has revised its outlooks to negative on nine issuers and downgraded one issuer since
mid-March. Three issuers have been placed on CreditWatch with negative implications.
In two cases, the agency revised positive rating outlooks to stable. Altogether, it
rates 53 REITs or real-estate operators in the region. More than 95% of this cohort are
rated investment grade, or rated at 'BBB-' or above. The agency does not expect any
"fallen angels" this year, meaning it does not expect these firms will sink to
speculative-grade.
Most REITs in Asia-Pacific have built cushions to withstand uncertainties ahead, thanks
to their recurring income, prudent debt usage, and limited refinancing needs. S&P expects
trust managers to implement financial levers to ensure adequate liquidity and credit
metrics consistent with their credit rating.
However, the rating buffers to absorb further external shocks vary across S&P's rated
portfolio. COVID-19 and its containment measures could have long-lasting effects on how
people interact and engage with retail and office real estate, and which will influence
their valuations. Some 22% of S&P's ratings on Asia-Pacific REITs are on negative outlook,
or CreditWatch with negative implications.
S&P acknowledged a high degree of uncertainty about the rate of spread and peak of the
coronavirus outbreak. Some government authorities estimate the pandemic will peak about
midyear, and the agency is using this assumption in assessing the economic and credit
implications.
It believes the measures adopted to contain COVID-19 have pushed the global economy into
recession. As the situation evolves, S&P will update its assumptions and estimates
accordingly. (KL)