GCR believes that South African REITs’ performance fundamentals will remain under pressure in 2021. However, if less restrictive COVID-19 lockdown levels remain in place, short-term operating risks should ease and allow for greater stability, although the longer-term trajectory is dependent on how REITs adjust the usage of their properties to meet the evolving requirements of tenants and their customers. In addition, liquidity and funding risks remain. GCR believes that, with few exceptions, leverage headroom remains limited, whilst covenant risk remains elevated.
The majority of GCR's REIT rating downgrades and Negative Outlooks over the past 12 months were in respect of predominantly South African based property portfolios with large exposures to highly vulnerable asset sub-classes, and/or very high leverage levels and weak liquidity. On the other hand, REITs with moderate to strong geographic diversification to international markets, which are likely to rebound more quickly from the 2020 global recession, have typically shown stronger credit profiles. The rating differences observed reinforces GCR’s view that an entity’s creditworthiness is strongly underpinned by the operating climate(s) of the territories it operates in, balanced against the REIT’s underlying asset and financial management.