Fitch: Risks to Rise for Singapore REITs in 2016; More M&A Likely

CDL Hospitality Trusts

23/11/2015 24:29

(The following statement was released by the rating agency)

Link to Fitch Ratings' Report: 2016 Outlook: Singapore Real Estate Investment 
Trusts

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=873845

SINGAPORE, November 22 (Fitch) Fitch Ratings says in a report released today, 
that risks for Singapore real estate investment trusts (SREITs) will increase in 
2016 because weak economic fundamentals will weigh on demand while new supply is 
added into most sectors. 

The agency expects SREITs with stronger balance sheets to become more 
acquisitive in 2016 as they try to boost earnings growth by capitalising on 
lower asset valuations. Sector leverage (defined as debt/total assets) is likely 
to increase in 2016 as a result. 

We expect hospitality SREITs' earnings to continue declining, but at a slower 
pace in 2016 because we think visitor arrivals into Singapore will recover. 
Nevertheless growth in hotel room supply in Singapore will continue to outpace 
demand, leaving operating conditions challenging for the sector. We expect 
ratings of CDL Hospitality Trust (BBB-/Stable) and Far East Hospitality Trust 
(FEHT, BBB-/Stable) to remain stable, supported by strong balance sheets, and 
around 40%-50% of income stemming from fixed rent.

Pressure on industrial SREITs' earnings will increase in 2016 due to the weak 
global economic climate. We expect lower-specification industrial assets, such 
as warehouses and multi-user factories, to see weaker rental reversions than for 
higher-specification assets, such as business parks. The demand for business 
parks is stronger, and a significant part of the new supply is pre-leased. The 
rating of Mapletree Industrial Trust (BBB+/Stable) is likely to remain stable, 
given that its assets are diverse and rentals are competitive, and because its 
financial profile is robust.

The strong performance of healthcare SREITs is likely to continue in 2016, 
supported by robust demand for their services and an ageing population in Asia. 
Healthcare SREITs' long-term lease structures with a high degree of rental 
protection and their high proportion of fixed-rate debt will also support 
earnings growth. The rating of Parkway Life REIT (BBB/Stable) is likely to 
remain stable, supported by its robust asset-quality, sound lease structures, 
and its healthy financial profile.

The full report "2016 Outlook: Singapore Real Estate Investment Trusts: Higher 
Risks for Hospitality and Industrial REITs; More Acquisitions Expected", is 
available on www.fitchratings.com, or by clicking on the link in this media 
release.

Contact: 

Hasira De Silva, CFA

Director

+65 6796 7240

Fitch Ratings Singapore Pte Ltd

6 Temasek Boulevard

35-05 Suntec Tower Four

Singapore 038986

Nandini Vijayaraghavan, CFA

Director

+65 6796 7216

Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email: 
leslie.tan@fitchratings.com.

Additional information is available on www.fitchratings.com

Related Research: "Fitch: Singapore REITs Likely to Issue More Perpetual 
Securities in 2016", dated 12 November 2015

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