How Singapore REITs Defend against Fed Rate Hike

Rising Interest Rates

I was curious on how the Singapore REITs I held in my portfolio will hold the fort against the recent Fed rate hike. Thus, I dig into the financial result releases by each REIT recently for more details. I learnt a new term known as “Interest Rate Swap”. REITs issue bonds or notes as a form of interest rate swap.

Below is the definition taken from Investopedia. There is a video where you can watch for easier understanding.

An agreement between two parties (known as counterparties) where one stream of future interest payments is exchanged for another based on a specified principal amount. Interest rate swaps often exchange a fixed payment for a floating payment that is linked to an interest rate (most often the LIBOR). A company will typically use interest rate swaps to limit or manage exposure to fluctuations in interest rates, or to obtain a marginally lower interest rate than it would have been able to get without the swap.

Below are some statements extracted from the financial results which indicate fixed rate interest as a form of hedging or usage of interest rate swap to manage exposure to interest rate fluctuations.

Cambridge Industrial Trust

Cambridge Industrial Trust has 96.5% of interest rate exposure fixed for next 3.2 years. Borrowing costs significantly insulated against interest rate increases.

Frasers Commercial Trust

Frasers Commercial Trust has 81% of its debt hedged and 19% floating.

(Read more: Frasers Commercial Trust Achieves All Time High DPU of 9.71% for FY15)

Suntec REIT

Uses interest rate swap to manage exposure to fluctuations in interest rates.

(Read more: Suntec REIT DPU Rises for 3Q2015)

Soilbuild Business REIT

95% of debt hedged.

Far East Hospitality Trust

Uses interest rate swap to manage exposure to fluctuations in interest rates.

(Read more: Far East Hospitality Trust DPU Fall for 3Q2015)

CapitaMall Trust

Uses interest rate swap to manage exposure to fluctuations in interest rates.

Keppel REIT

Increased fixed-rate loans to over 70%, which will insulate against interest rate fluctuations, while allowing for financial and operational flexibility.

(Read more: Keppel REIT announces DPU of 1.70 cents for 3Q2015)

Mapletree Commercial Trust

Uses interest rate swap to manage exposure to fluctuations in interest rates.

(Read more: Mapletree Commercial Trust DPU Rises 2.5% to 2.02 cents 2QFY15)

OUE Hospitality Trust

Uses interest rate swap to manage exposure to fluctuations in interest rates.

ParkwayLife REIT

ParkwayLife REIT has hedged approximately 78% of its interest rate exposure.

(Read more: Parkway Life REIT DPU Increases for 3Q2015)

Conclusion

As a conclusion, we can see that most Singapore REITs are well defended against the Fed interest rate hike.