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.