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.
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.