The steep rise in commercial property values could place the creditworthiness of some real estate investment trusts under pressure, and according to a report done by Moody’s Investors Service, declining property yields were weighing on credit metrics for some rated Australian real estate investment trusts; but it still regards their overall credit quality as stable as they are supported by solid asset quality, strong debt-to-asset gearing and high interest coverage. The surge in buyer interest in towers, warehouses and even convenience-based shopping centres has caused yields, a measure value in the sector, to fall.
Moody's vice-president Saranga Ranasinghe stated that they are expecting yields to continue to contract for the rated A-REITs over the next 12 to 18 months amid rising property values and portfolio upgrades to higher-quality properties with more stable but lower-yielding returns. While this will pressure the net debt/earnings before interest, tax, depreciation and amortisation ratios of the rated A-REITs, they view the credit implications holistically and consider many metrics to assess overall credit strength.
Asset/debt ratios remain strong, and the A-REITs also have mitigants in place to manage the eventual rise in interest rates and possible asset devaluations, she continued. Moody’s notes that high property values have resulted in considerable headroom under the A-REITs’ target gearing levels, and on average they had the ability to withstand 30% falls in asset prices before hitting the upper end of their target gearing levels and debt serviceability also remains strong and will probably improve further, as interest rates head lower.
Moody’s says A-REITs’ credit profiles and financial discipline have improved since the global financial crisis 12 years ago, when property valuations crashed and most A-REITs had to sell assets or undertake rescue raisings to satisfy banks. “We would expect investment-grade rated A-REITs to have the capacity to remain within their loan covenants under our downside scenarios,” it says.
Source: https://www.realcommercial.com.au/news/commercial-property-boom-poses-risk-to-reits-moodys
Ray White’s top 10 listings for November: (Click on the address to view listing)
Suite 902/50 Margaret Street SYDNEY
Level 3, 48 Hunter Street SYDNEY
Suite 603, 2 Barrack Street SYDNEY
Level 8/27 Macquarie Place SYDNEY
Suite 302/46 Market Street SYDNEY
Suite 2, 185 Gloucester Street SYDNEY
Suite 704, 1 Margaret Street SYDNEY
Level 1, 27 Macquarie Place SYDNEY
Whole floor, 283 Clarence Street SYDNEY
Level 3, 213 Clarence Street SYDNEY