Top Singapore REITs unscathed by rising interest rates

Improving net operating income will help them mitigate costs.

The improving net operating income of the most rated Singapore real estate investment trusts (Reit) will help them cushion the increasing borrowing costs, said S&P Global.

In their report, S&P Global analysts said most rated Reits also have a high proportion of fixed-rate debt and well-spread debt maturities to keep them afloat from these costs.

“We assume Singapore dollar funding costs will increase by 150 basis points (bps) in 2022 and 280 bps in 2023 from 2021. We also assume Singapore REITs will refinance their debt maturities with bank loans rather than longer-dated bonds,” read S&P’s report.

In terms of financial headroom, FLCT is the most resilient after its Cross Street Exchange commercial asset sale in fiscal 2022. It also has minimal debt maturing in fiscal years 2022 to 2023. 

READ MORE: Rising interest rates cut by half acquisitions by S-REITs: analyst

Aside from this, S&P also sees that rated retail and office Reits will remain stable due to their operating margin despite the inflationary pressures.

“This is because they can generally pass through higher energy costs to their tenants in the form of a service charge. Also, they enter into fixed-rate contracts with electricity suppliers to lock in prices,” read the report.