Moody’s tips Australian real estate investment trusts to remain resilient

Australian REITs had ‘a good buffer’ coming into the coronavirus crisis, says a report from Moody’s Investors Service.

Australian REITs had a good buffer coming into the coronavirus crisis. Picture: AAP

An expected fall in commercial property prices is unlikely to rock Australian real estate investment trusts, with Moody’s tipping the sector to remain resilient.

Australian REITs had a good buffer coming into the coronavirus crisis and were in a better position to weather the economic storm that they were ahead of the 2008 global financial crisis, a new report from Moody’s Investors Service.

Vice president and senior analyst, Saranga Ranasinghe, said this should see the sector continue performing in the face of weak demand and slowing activity.

“Most rated A-REITS’ credit quality will remain intact as the average property value would need to fall 34 per cent to breach A-REITS’ target gearing (debt/asset) ranges, and fall 55 per cent to breach their covenant thresholds,” Ms Ranasinghe said.

Retail and office prices are expected to fall over the next 12 to 18 months on the back of weakened leasing demand and lower activity levels as a result of poor economic conditions created by the pandemic. Demand for industrial space and the e-commerce boom experienced through the lockdown is expected to buoy prices in this area.

Moody’s expects A-REITs to enter into protection mode over the next 12 to 15 months to preserve liquidity, well-staggered debt maturities and large pools of unencumbered assets. Industrial property owners, including Vicinity Centres, Shopping Centres Australasia Property Group and Charter Hall Retail REIT, have already made moves to raise equity and strengthen their balance sheets.

Trusts heavily reliant on industrial stock like Goodman Group, Goodman Australia Industrial Partnership and Charter Hall Prime Industrial Fund are expected to benefit most from the post-COVID price trends.