Higher borrowing costs hit SREITs in Q1

Debt hedging has also increased.

A new trend has become clear as the dust begins to settle after the first-quarter reporting season: borrowing costs have largely crept up for S-REITs, with more REITs hedging their debt to grapple with higher interest rates.

According to OCBC Investment Research, the increase was driven by the recent spike in SIBOR and SOR, coupled with higher swap cost.

REITs under OCBC’s coverage have fixed/hedged an average of 79% of their debt as at the end of March, an increase of 3 percentage points versus the end of 2014.

On average, office REITs under its coverage have hedged 77.1% of their borrowings, while retail REITs have fixed 81.2% of their debt.

Industrial REITs have hedged 77.6% of their debt on average, while hospitality REITs have fixed 75.3% of their borrowings.

“ Uncertainties over the Fed funds rate hike also remain a concern for investors. The U.S. 10-year Treasury bond yield has recently seen a 40 bps spike from 1.89% on 20 Apr 2015 to 2.29%, and this corresponded with a decline in the FTSE ST REIT Index by 2.1%,” stated the report.

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