S&P: Subdued regional economy will suppress rental growth for A-P REITs

KUALA LUMPUR (Nov 29): Asia-Pacific real estate investment trusts (REITs) will be wrestling with dampening tenant demand due to subdued business and consumer confidence arising from the expected slowdown in the region's economies in the next few months, according to Standard & Poor's Ratings Services (S&P).

It said this in a report entitle "For Asia-Pacific REITs, Weak Regional Economy Will Keep A Lid On Rental Growth" released on Thursday.

Nevertheless, S&P forecast that a pick-up in regional growth in the later part of 2013 would gradually boost demand from tenants.

S&P credit analyst Craig Parker said that major real estate markets of Australia, Hong Kong, Japan, Singapore, and Taiwan were expected to generally see economic pressures suppressing rental growth in the short term,"

"Nevertheless, we expect rated Asia-Pacific REITs to maintain their credit quality due to the sound foundations they have built over the years.

We observe that they have maintained a well-spread leasing maturity profile and diverse tenant base that reduces the impact of cyclical volatility. And their superior quality property portfolios continue to attract tenants compared with the whole market,” said Parker.

Standard & Poor's rates 42 REITs covering the region's major real estate markets.

The majority of rated REITs have investment-grade ratings with a stable outlook.

“We observe that debt issuance from REITs into the capital markets has increased significantly largely due to banks offering relatively higher borrowing costs and shorter term funding. The total rated debt issuance year-to-date is about US$6.4 billion.

“As capital requirements and regulations become tighter for banks in 2013, we expect rated REITs to favor debt capital markets, and issuers will be looking to lock in longer term funding at attractive interest rates,” said S&P.

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