Fitch sees 'improved' rated SG REITs' EBITDA net leverage in 2023

This is due to a continuous recovery in hospitality trusts’ cash flow.

Fitch Ratings revealed in their new report that there is an improvement in the net leverage of rated Singapore REITs’ EBITDA this 2023, as the cash flow of hospitality trusts continues to recover.

The report also stated a decrease in opportunities for inorganic growth across all sectors as higher funding costs outpace cap-rate expansions.

Hospitality REITs expect to deleverage because of the increasing EBITDA due to pent-up demand from boosted regional and global travel caused by the reopening of many Asian markets.

As a result, there will be an improvement in the leverage of rated hospitality REITs, creating more room for higher credit ratings.

“We believe China’s reopening in early 2023 will further benefit cash flow at hospitality trusts, mitigating the drag from inflation,” Fitch said.

The report also expected a slowdown in inorganic growth and portfolio rebalancing opportunities for REITs due to rising funding costs, particularly for logistics REITs, which saw record acquisitions in recent years.

REITs will also become more selective in sourcing their earnings-accretive acquisitions because the cap rates of their quality assets may remain tight in the next 12 months.

Fitch believed prime downtown offices will benefit “from a flight to quality, away from secondary properties as return-to-office trends in Asia gain traction.”

“Singapore office vacancies continued to fall in 4Q22 from a year ago, while downtown office rents rose sharply, surpassing pre-pandemic levels. Tenants may become more selective and rethink space requirements amid a moderating economic outlook, both globally and in Singapore,” Fitch said.

Fitch predicted that retail rent reversions will “continue to recover and turn positive” towards late 2023 or early 2024 due to tourists and office workers returning to downtown shopping malls.

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