Reits can withstand debt costs resetting to much higher levels

This year marks 20 years since real estate investment trusts (Reits) emerged on the Singapore Exchange, with the listing of CapitaMall Trust (now called CapitaLand Integrated Commercial Trust : C38U 0%) and Ascendas Reit (now called CapitaLand Ascendas Reit : A17U 0%) in 2002.

Over two decades, Reits have grown to be a major segment of the local bourse, contributing seven out of the 30 constituents of the benchmark Straits Times Index (STI). But the United States Federal Reserve has wrecked celebrations for Singapore Reits, with its aggressive hiking of interest rates to combat high inflation. The iEdge S-Reit Index as at Nov 11, 2022, is down 19 per cent versus end-2021.

Borrowing costs in Singapore are rising, with the three-month compounded Singapore Overnight Rate Average up by over 240 basis points from the start of the year to about 2.6 per cent per annum as at value date Nov 11, 2022.