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By Nikki De Guzman:
Although the 2nd best performers in Asia, real estate investment trusts (REITs) in Singapore may need to diversify sources of funds as they are not prepared for an “interest rate shock”, according to Fitch Ratings.
“Singapore REITs are not really well equipped to withstand an interest rate shock,” said Johann Kenny, Director of Corporates at the global rating agency.
Kenny explained that Singapore’s property trusts have been pushing up short-term debt due to record-low interest rates, but as borrowing costs rise, they may need to sell assets or shares to boost funding.
“When a rating agency looks at a company, we look at the long-run average through the cycle of the interest rate environment and we don’t see the current low interest rates as a sustainable model from a macro-economic perspective.”
According to Kenny, local trusts have relied on short-term debt to reflect the length of commercial leases. However, their funding costs over the last six years failed to reflect the challenges in a “normalized” interest rate scenario.
Singapore REITs raised S$3.4 billion or 68 percent of the S$5 billion in stocks transacted among local IPOs in the last year, Bloomberg reported.
Earlier this quarter, Mapletree Greater China Commercial Trust raised S$1.6 billion in the biggest REIT IPO in Singapore. The trust, which owns assets including Festival Walk shopping mall in Hong Kong and an office complex in Beijing, was also Asia’s biggest share sale this year surging 12 percent since trading began on March 7.
Nikki De Guzman, Junior Reporter at PropertyGuru, wrote this story. To contact her about this or other stories email nikki@propertyguru.com.sg
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