Suntec REIT braces for spiking interest rate pressure

Rising borrowing cost could have 3% impact on DPU.

According to CIMB, with a fairly high aggregate leverage of 39%, lower interest rate hedges (about 60% of total borrowings) and a short average length of debt maturity, we believe that Suntec could be among the REITs which are more exposed to interest rate hikes. We estimate that a 50bp increase in the cost of borrowing could have a 3% impact on DPU.

Here's more:

All eyes are on Suntec’s massive asset enhancement plan at Suntec City Mall as a growth-driver for Suntec. Since starting in Jun 2012, Suntec REIT had gone through its worst-hit quarter thus far in 1QFY13 as revenue from the mall fell 44% yoy due to overlapping phases of asset enhancement.

The impact was, however, softened by a top-up using the Chijmes divestment proceeds. The asset enhancement initiative (AEI) has been progressing smoothly so far.

As at 1Q, pre-commitments at Phase 1 were at a high 96.7% ahead of opening in June, while Phase 2 has achieved pre-commitments of 53% ahead of completion in 4Q13.