Poor outlook for Australian REITS

Moody's Investor Service has re-assessed its view on the A-REITS sector, moving to a negative outlook for the next 12-18 months. Moody's says the sector is now facing prospects of a further weakening in its operating environment, increased refinancing risk, and likely climbs in financial leverage due to asset value depreciation.

Despite Moody's change in outlook for the sector, it says most of its rated A-REITs have a stable outlook on their ratings, as they are better placed than the wider sector to withstand the challenging operating and credit environments.

Earlier in the week, Fitch Ratings released its Australian Corporate Health Report and highlighted that the Australian corporate sector has undergone a marked deterioration in credit metrics over the year to June 2008, to the point that a number of metrics examined were at their weakest since 1992. It is the financial sub-sector, which includes Allco Finance Group and Centro Properties Group, that has contributed most to the deterioration, ameliorated somewhat by the strong performance of the materials sub-sector. Unfortunately, this is unlikely to continue into 2009 and points to a difficult period ahead for the corporate sector.