High rates hamper growth for struggling Singapore REITs

It will be tougher to make acquisitions this year.

The steep cost of capital will stand in the way of growth for Singapore-listed REITs, according to a report by DBS.

DBS noted that with the current equity markets and the cost of debt expected to climb in 2016, the ability to make DPU accretive acquisitions will become progressively harder.

REITs will also have more difficulty funding acquisitions because of new gearing ratios implemented by Singapore’s central bank.

“While REITs should comfortably sustain gearing at such levels, investors have become nervous given the newly imposed 45% limit by MAS. Thus, heading into 2016, should the performance of S-REITs be capped due to our higher-than-expected pace of interest rate hikes, the ability to acquire may be curtailed due to difficulty in raising equity via placements or leveraging up the balance sheet,” said DBS.

As a consequence, DBS said that S-REITs will likely be forced to turn to perpetual securities, equity rights issues and/or disposal of lower-yield properties to support their expansion plans.