Moody’s expects SA’s Reits to weather low economic growth
Ratings agency says it expects the four SA real estate investment trusts to remain resilient due to quality properties in prime locations and offshore exposures
Moody’s expects the four South African real estate investment trusts (Reits) it provides credit ratings for to weather the country’s low economic growth and other problems.
Moody’s rates Growthpoint as Baa2 and Redefine, Fortress and Hyprop as Baa3. It said in a note on Thursday it expected their performance "to remain resilient, thanks to quality properties in prime locations, broad sector/tenant diversification and offshore property exposures".
Fortress’s leverage ratio (adjusted gross debt/gross assets) of 24% is the strongest for its rating, followed by Growthpoint’s at 33%. Liquidity positions are well managed, with good access to equity and debt capital markets, the report said.
The ratings agency said it expected mid to high single-digit net operating income growth for their local portfolios in 2017: "Disposing of lower quality properties, refurbishing existing properties and developing new ones will promote tenant retention, maintain positive rental renewal growth and keep vacancy rates low."
The trusts’ recent international expansion "brings positive yields spreads and exposure to higher growth economies with stronger, more stable currencies relative to the rand. However, investment in countries with weak credit profiles, such as in Africa, may increase business and operating risks", the agency said.
Moody's analyst Dion Bate said, "High quality property portfolios and broad local and offshore commercial property diversification will provide South African Reits ... with a buffer against continued low GDP growth in 2017, weak local demand, depressed business and consumer confidence and, in turn, a weaker South African commercial property market."