Why Singapore developers are in worse funding shape than REITs

Former has more short term refinancing needs.

Singapore-listed developers and REITs may have been seen by many to be in the same boat when it comes to rising vulnerability to refinancing risk, but REITs are generally in better shape, says Barclays.

REITs have fewer short term refinancing needs, and are supported by recurrent income and a better commercial property outlook compared to developers.

Here's more from Barclays:

Bloomberg recently highlighted that Singapore listed developers and REITs face their heaviest burden of near-term debt maturities on record, potentially fueling refinancing concerns. Our in-depth analysis suggests a divergent picture for developers and REITs: 1) we see more funding pressure on developers given the increased short term borrowings and higher net gearing ratios in a deteriorating residential market which could crimp cashflows; 2) REITs, however, are generally in better shape with fewer short term refinancing needs, supported by recurrent income and a better commercial property outlook. We prefer Singapore REITs to developers with OWs on KREIT, CCT, MINT, AREIT and CMT, UW on City Developments and Keppel Land.

Developers – short term debt up 45% y/y to S$14bn: According to Bloomberg's data, developers' total short term borrowings climbed 45% y/y to S$14bn as of Jun 2014, a record high in the past ten years (Fig 1). Aggregate net debt/equity gearing rose to 32% as of June 2014 from 27% in 2013, which is also the highest level since 2011. With private developer volumes down 52% y/y YTD, we believe developers, especially those which rely most on the Singapore residential market, could face more funding pressure than before. The saving grace is that aggregate short term debt remained relatively stable at 22% of total debt, in line with its historical average. Among the major developers, most developers saw an increase in short term debt and net gearing levels y/y except for Keppel Land which saw short term debt fall (though gearing still up) and GLP, which saw net gearing decline (though short term debt still up).

REITs –S$1bn/S$6bn borrowings due 2014/2015: On the other hand, our analysis on the universe of REITs' debt profile suggests that only S$1bn (3%) and S$6bn (17%) of their total S$35bn borrowings are due 2014 and 2015, respectively. The overall debt/asset gearing ratio for Singapore REITs gradually improved to 32% as of end-June 2014 from 33% one year ago and 34% two years ago. Based on our estimates, the weighted average term to maturity for REITs' debt has been stretched to 3.4 years. We see limited refinancing risk in the REIT space given less absolute short term debt due, improved gearing and stable recurrent rental income from improving commercial markets. The capital management appears prudent among REIT names, as most REITs appear to have refinanced ahead of their short term debt expiries. Notably, Singapore office REITs have the longest average debt maturity of 3.7 years among sectors (CCT: 4 years, KREIT: 3.5 years).

We like KREIT, CCT, MINT, AREIT and CMT: Overall the REITs are in a better shape on the back of improved gearing, fewer short term refinancing needs and support from recurrent rental income, while developers could face more headwinds. We expect the fundamentals of the Singapore housing market to deteriorate with home prices to fall another 15% towards the end of 2015. We reiterate our preference for REITs to developers. Our OWs are KREIT, CCT, MINT, AREIT and CMT.