Moody's maintain's cautious outlook for European firms

PUBLISHED : Wednesday, 26 June, 2002, 12:00am
UPDATED : Wednesday, 26 June, 2002, 12:00am

An uncertain outlook for the European property market this year will add to pressure being experienced by real-estate investment and development companies to maintain and increase returns in a low-inflation environment, Moody's Investors Service reports in its latest industry outlook.

However, Moody's said a number of factors should help to offset the negative effects of a softening property cycle and was maintaining a cautious credit outlook for European property firms. Moody's noted that European property companies were likely to respond to shareholder pressure by intensifying efforts to sweat their asset base and adopt a more geared business and financial profile.

Moody's senior vice-president and author of the report, Niel Bisset, warned: 'Although more active portfolio management can be positive from a credit perspective, an increase in development investment and financial gearing together with more frequent capital recycling can have the effect of raising a firm's credit risk profile.''

The report identified certain offsetting factors, which should provide credit investors with some comfort. First, the outlook in most markets was for a gentler cyclical downturn than was experienced in earlier downturns. Another factor was that most property companies had entered the cyclical downturn with relatively sound balance sheets and better-quality portfolios.

Some common themes across national real-estate markets in Europe were becoming discernible and provided both opportunities and challenges for specialist investment and development companies, the report noted. These included a growth in the number of property owners that were looking to release capital tied up in long-held real estate or to transfer the obligations of occupation to third parties in return for additional flexibility.