Rising interest rates: Which SREIT will be the biggest loser?

The DPU of an industrial REIT is expected to drop 15.0% in 2023.

Whilst real estate is a hedge against inflationary pressure, UOB Kay Hian said SREITs are not yet out of the woods from the possible impact of the Fed's intense rate hike.

According to the analyst, interest rates in Singapore have moved up accordingly with Fed, and by end-22 and end-23, the latter's Funds Rate would hit 3.4% and 3.8%, respectively.

Out of the 20 REITs covered by UOB Kay Hian, the analyst said Digital Core REIT(DCREIT) would be most affected by the rate hikes in terms of dividends per share (DPS).

As per the analyst estimate, DCREIT's DPU will drop 15.0% to $0.0401 in FY23.

"DCREIT has maintained the proportion of borrowings hedged to fixed rates at 50%, which means the remaining half of its borrowings are exposed to higher US interest rates," the analyst explained.

Apart from its DPU, the REIT's cost of debts will also be affected by the rate hikes and is expected to increase from 2.1% to 3.6% in 2023.

Another SREIT which has a low proportion of borrowing on fixed rates is Suntec REIT (SUN) with 51%. SUN's DPU is expected to fall by 4.8% to $0.0957 in FY23.

SREITs like CapitaLand Integrated Commercial Trust (CICT), Keppel Pacific Oak US REIT (KORE), and Manulife REIT (MUST), on the other hand, have a high proportion of their borrowing on fixed rates of 85%, 84.2% and 86.5%, respectively.