Here’s how rate hikes will impact Singapore’s largest REITs

Expect DPU cuts once higher rates kick in.

Markets expect that the US Federal Reserve will raise benchmark interest rates by 25 base points at its meeting this week.

Although it is expected that real estate investment trusts (REITs) will be negatively impacted once rates rise, Credit Suisse notes that some REITs are more vulnerable than others. 

Credit Suisse expects that a 25 bp rise in rates will trim Keppel REIT’s distribution per unit (DPU) by -1.1%, while Suntec REIT will see its DPU dip by -0.8%.

Meanwhile, CDL Hospitality Trusts and Ascendas REIT will both experience a -0.7% drop in DPU, while OUE Hospitality Trust will see a contraction of -0.6%. Mapletree Commercial Trust, Mapletree Logistics Trust and Ascott Residence Trust will all see a DPU drop of -0.5%.

Other REITs will experience more marginal declines, such as CapitaCommercial Trust with a -0.3% contraction. Meanwhile, SPH REIT, Mapletree Industrial Trust, and Frasers Centrepoint Trust will all see a -0.2% DPU contraction.

“We find heavily geared stocks with unhedged US foreign debt, importers, and those with revenues and COGS denominated in mismatched-currencies are likely to be the most affected by a US hike. Banks may benefit from a widening of loan spreads,” Credit Suisse said.