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Healthy operating environment supports S-REIT sector's stable outlook: Moody's

"The outlook reflects our view that the sector's EBITDA will grow by 4% in 2014, supported by a larger asset base and some positive rental revisions," said a Moody's Assistant Vice President and Analyst.

SINGAPORE: Moody's Investors Service says that a healthy operating environment and manageable refinancing risk continue to support the stable outlook for the Singapore Real Estate Investment Trust (S-REIT) sector.

Moody's rates 17 S-REITs, of which 16 carry stable outlooks. The exception is Mapletree Commercial Trust, whose Baa2 rating carries a positive outlook.

Jacintha Poh, a Moody's assistant vice president and analyst, said in a statement: "The outlook reflects our view that the sector's EBITDA will grow by 4 per cent in 2014, supported by a larger asset base and some positive rental revisions."

In the office segment, Moody's expects the limited supply of new office space in the core central business district will improve occupancy rates and increase monthly rental rates.

In the retail segment, a slower take-up rate for new retail space is expected, due to weaker tenant sales and a lack of demand.

As for the hotel segment, increasing supply in 2014 and 2015, along with moderating growth in Singapore's tourist arrivals and tourism spending, will cap growth in average room rates.

Business and science parks will also see sizeable space additions in 2014 and 2015, but Moody's expects rental rates will remain broadly stable due to strong demand.

Moody's predicts pressure on occupancy and rental rates in the warehousing segment due to a spike in the supply of new warehouse space. Despite this potential weakness, the firm also estimates that at least 60 per cent of upcoming space has been pre-committed by end-users.

Funding costs are also expected to increase with the rising interest rate environment, but Moody's notes the rated S-REITs are insulated as more than half of their outstanding debt is tied to fixed interest rates.

The sector's debt maturity profile is also healthy as the majority of debt will be maturing in five calendar years and beyond. According to Moody's, the sector's debt maturity profile is now well staggered, such that no more than 30% of debt needs refinancing in any single year.