Analyst warns AsiaPac REITs who depend on bank debt for funding

Asia-Pacific rated real estate investment trusts and real estate operating companies (collectively 'REITs') have reduced their debt burdens and diversified their funding sources away from the banking sector, Standard & Poor's Ratings Services said in a commentary. The article titled, "Asia-Pacific REITs Stand In Good Stead To Face Shaky Conditions", highlights that these steps have positioned Asia-Pacific REITs to withstand expected higher volatility in global conditions.

"Funding costs could become more expensive for rated Asia-Pacific REITs, as seen in the widening of credit default swap spreads," Standard & Poor's credit analyst Craig Parker said. "Combined with stricter bank regulations, bank debt costs could push higher, affecting Asia-Pacific REITs who remain dependent on bank debt for short-to-medium term funding. In addition, fragile consumer sentiment in the region could result in lower leasing demand and retail sales."

However, the REITs have adopted more conservative financial profiles and maintained high occupancy levels in their portfolios. With prudent portfolio management, REITs are well placed to counter the potentially tougher conditions, in our opinion. Indeed, Asia-Pacific real estate entities rated by Standard & Poor's, whose assets range from malls to skyscrapers, remain largely entrenched in the investment-grade rating category. The majority of the 38 issuers we rate in the region are clustered around the 'A' category.