Here’s why the Fed’s interest rate hike shouldn’t spook REITs

At least not for now, say analysts.

The recent move of the Fed to raise short-term interest rates has numerous implications across all markets, but analysts say Singapore’s Real Estate Investment Trusts (REITs) virtually have nothing to worry about.

According to a report by UOB Kay Hian, the impact of the hike is minimal in the near term due to the long debt maturity period and the high proportion of fixed rate debt.

“Even the conservative case of refinancing of total outstanding debt due outright (5.5- 13.8% drop in DPU for a 100bp rise) has been priced in by the market. We are already adopting a risk-free rate of 3% and opine that the market has likely factored in a more punitive 140bp pick-up in interest rates,” UOB Kay Hian said.

UOB Kay Hian adds that the average debt maturity among Singapore’s REITs has more than doubled from the Global Financial Crisis period, meaning they will require less debt refinancing in the near term.

“REIT managers have tapped on Medium-Term Notes (MTN), going beyond banks to attain long-dated debt. Examples include AREIT and CMT, with MTN loans maturing as far back as 2029 and 2027 respectively,” the report said.