Fixed-interest debt fortifies S-Reits against chill from rising rates

Diversified funding sources, low gearing also expected to help them weather an interest rate scenario that will benefit banks

Tay Peck Gek

Published Tue, Oct 23, 2018 · 09:50 PM

Interest rates

Singapore

RISING interest rates are known to hurt Real Estate Investment Trusts - but in the latest round of hikes, Singapore-listed Reits (S-Reits) appear to have rate-proofed themselves well.

Analysts tracking the sector point to several factors why they are in better shape to weather the interest rate headwind this time round - the chief reason being their hedging foresight in opting for fixed-rate financing.

DBS Bank property research head Derek Tan told The Business Times that though debt is a major source of financing for Reits, the impact from rising rates would be "minimised" by the refuge offered by fixed-rate loans, which now make up 85 per cent of their total debt.

Post-Great Recession, the three-month swap offer rate (SOR), a benchmark used mainly for commercial loans, hit a seven-year high at 1.762 in early 2016. It now hovers at 1.698, having risen over 55 basis points …