Singapore REITs threatened by rocketing vacancy rates

Especially as 75% of portfolios have to be profitable.

According to Fitch Ratings' special report on Singapore REITs, the threat of higher vacancy rates looms over most of the SREIT sector. Lower absorption rates and lower asset yields will increase the risk profile of SREITs in 2013.

The rapid pace of new supply and planned supply is outstripping the demand for space. Fitch expects this trend to accelerate in 2013 and to therefore increase the exposure of the SREIT sector to a sustained macroeconomic downturn.

Here's more from Fitch:

Operating Risk Profile Resilient: The SREIT sector exhibits a strong operating risk profile that Fitch expects will remain stable over the next few years.

The revenues and profitability of the SREIT sector are underpinned by the strong economic fundamentals of Singapore. As a testament to their robust and defensive earnings profile, SREITS increased both revenue and margins during the financial crisis of 2008-2009.

Well Regulated: The regulation of SREITs in Singapore is expected to remain supportive of the sector’s ratings over the medium term. SREITs are regulated by the Monetary Authority of Singapore (MAS) and are subject to stringent restrictions regarding, disclosure, leverage and management competency.

Moreover MAS requires 75% of SREIT portfolios to be income generating.

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