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S&P Revises Outlooks For Australian Retail REITS

S&P has revised the outlooks for four Australian retail REITs to negative and one to stable, citing limited buffering to absorb “the likely economic recession and depressed retail environment due to the COVID-19 pandemic”. It kept its rating the same for three REITs.

The ratings agency has forecast Australia’s real GDP to grow by 0.4% in 2020, and expects that retail landlords’ credit quality will weaken as retail tenants’ increasingly struggle to pay rent.

“Government measures to contain COVID-19 are particularly hurting industries that rely on discretionary consumer spending,” S&P said. “The large flagship assets that house these retail businesses are predominantly owned by rated retail REITs.”

Although Australia is not yet in a complete shutdown, major retailers have already closed some 7700 stores.

It will be vital for property owners to support their retail tenants in remaining financially viable, both during the COVID-19 pandemic and after restrictions begin to ease.

“Most REITs we rate can afford losses for about three months before breaching downgrade thresholds. We believe landlords are likely to seek government tax relief and reduce operating expenses to limit the earnings hit,” S&P said.

S&P’s revised outlooks are as follows:

  • GPT Wholesale Shopping Centre Fund: BBB+ Stable –> BBB+ Negative
  • QIC Property Fund: A Positive –> A Stable
  • QIC Shopping Centre Fund: A- Stable A-2 –> A- Negative A-2
  • Scentre Group: A Stable A-1 –> A Negative A-1
  • Vicinity Centres: A Stable –> A Negative
  • AMP Capital: A Stable
  • Australian Prime Property Fund Retail: A- Negative A-2
  • BWP Trust: A- Stable
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