Summary of December 2015 Transactions

Portfolio_201512_Dec

Earlier in the first week of December, I bought a little bit more of ST Engineering. This increases my allocation from 10 percent to 12 percent for ST Engineering.

December was a month of dividends collection. I collected dividends from Mapletree Commercial Trust, ParkwayLife REIT, Far East Hospitality Trust, Cambridge Industrial Trust, OUE Hospitality Trust and AustNet Services.

On top of dividends, I have received my partial script dividends for Cambridge Industrial Trust. The reason for partial subscription of script dividends is because I have existing odd lots and we all know that the current minimum lot size is 100. With the addition, the quantity I hold for Cambridge Industrial Trust is no longer an odd number.

The global market looks uncertain at this moment. The Fed rate hike announcement on the 17th of December did not have much impact on the global markets. The reason for the quiet market can also be due to the holiday season and everyone was away from their buy and sell activities.

Going forward, I shall be building my war chest while waiting for a clearer outlook. I will nibble at a few of the counters in my watch list if prices are right but will avoid big transactions.

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.