Indonesian property developers' cash flow to improve this year: Moody's

Residential property demand will recover the fastest.

Moody's Investors Service says in a new report that demand recovery will be uneven across Indonesian property segments, although cash flow is expected to broadly improve from low levels in 2020.

"Demand for residential property will recover the fastest among the property segments, where pent-up demand and low interest rates will fuel a 10% growth in rated developers' aggregated core marketing sales," says Jacintha Poh, a Moody's Vice President and Senior Credit Officer.

"In the retail segment, however, weak sales will hurt retail space demand, and occupancy and rents are unlikely to return to pre-pandemic levels. And in Jakarta, the central business district remains exposed to subdued office demand amid upcoming asset completions and telecommuting," adds Poh.

Moody's expects aggregated cash flow for the six rated Indonesian property developers will rise in 2021 after dropping significantly in 2020 because of coronavirus disruptions. A normalization of rental income from retail malls and core marketing sales growth will lift aggregated operating cash flow.

In particular, landlords Pakuwon Jati, Tbk. (P.T.) (Ba2 stable) and Agung Podomoro Land Tbk (P.T.) (B3 negative), which generate over a quarter of their revenue from retail leasing, will benefit from declining rent relief to tenants. And most developers, having refinanced their upcoming US dollar debt and with no maturities through to 2023, will have adequate liquidity over the next 12-18 months.

That said, credit metrics will remain weaker than pre-pandemic levels, as rising cash flow will not immediately improve credit metrics because of the time lag between revenue recognition and marketing sales.

Aggregated leverage, as measured by debt to homebuilding EBITDA, will remain high at 5.1x in 2021, despite improving from 7.1x in 2020. Aggregated EBIT interest coverage, as measured by homebuilding EBIT to interest expense, will remain low at 2.0x in 2021, versus 2.5x in 2019.

Subscribers can access the report "Property – Indonesia: Cash flow will rise from low base amid uneven recovery across property segments".

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