Risks intensify for APAC REITs amid looming interest rate hike

REITs are rushing to pay their debts.

Risks are intensifying for the region’s REITs as the US Federal Reserve moves to raise its interest rates. According to a report released today by Standard & Poor’s, higher interest rates will have major repercussions on REITs because interest expenses are a major component of their costs.

According to the report, most of its rated APAC REITs will have a stable credit outlook because they have amassed high-quality portfolios that can withstand economic headwinds better than lesser-quality properties held by their competitors, sustaining their credit quality despite sluggish rental growth.

A key risk to the outlook is a likely hike in interest rates. We expect the U.S. Federal Reserve to raise interest rates in the next two years, potentially triggering tighter monetary policies in Asia-Pacific.

"Still, we expect that rated Asia-Pacific REITs can largely shoulder the higher interest burden. The REITs are attempting to cut their interest costs and extending their debt tenors. They are also refinancing expensive debt incurred during the height of the global financial crisis at reduced rates. Furthermore, REIT managers are still holding back even though they have room to borrow substantially more," said Standard & Poor's credit analyst Craig Parker.