With growing speculation that the US Federal Reserve will slow rate hikes to half a percentage point in December, global Reits saw a stronger performance last week. The FTSE EPRA Nareit Developed Index gained close to 4 per cent last week while Singapore’s iEdge S-Reit Index booked its strongest week this year with 6 per cent returns.

Office Reits averaged 8 per cent returns last week, the strongest sub-segment within the broader sector. This was followed by hospitality Reits and industrial Reits, averaging 7 per cent and 5 per cent gains, respectively.

Outperforming S-Reits for the week include Manulife US Reit, Keppel DC Reit, Aims Apac Reit, Keppel Pacific Oak US Reit, and CDL Hospitality Trusts.

Four of the above five S-Reits have reported earnings or business updates for the latest quarter, except for Manulife US Reit which will be reporting on Nov 2.

While the sector rebounded slightly on expectations of a less hawkish rate hike, many Reit managers have noted that they are proactively managing capital in view of rising interest costs.

Manulife US Reit reported 85.7 per cent of debt pegged to fixed rates as at end June 2022. CDL Hospitality Trusts refinanced £50 million of existing term loan facilities in Q3 2022 and noted that documentation is under way for the remaining S$193 million debt maturing towards the end of the year. Keppel DC Reit (KDCReit) noted that its debt maturity profile is well spread out, with the bulk of debt expiring from 2026 and beyond. It is also actively managing interest rate exposures with 74 per cent of loans hedged to fixed rates. Similarly, Keppel Pacific Oak US Reit (Kore) noted that it has no long-term refinancing obligations till Q4 2024. The Reit has pegged 76.8 per cent of loans to fixed rates and estimates that every 50-basis-point increase in Libor/SOFR translates to a 0.067-US-cent dip in distribution per unit (DPU) per annum.

Aims Apac Reit (AAReit), in its latest H1 FY2023 release, noted that it does not have any refinancing requirements for the rest of FY2023 and that debt expiring in FY2024 has been reduced to S$30 million, representing 3.7 per cent of total debt. Approximately 88 per cent of the Reit’s total debt has been hedged into fixed rates and every 25-basis-point increase in interest rates is expected to have a 0.08-cent DPU impact per annum.

Several Reits also addressed potential impact from rising electricity prices and inflation in their latest updates.

AAReit expects inflationary pressures and rising energy costs to increase operational expenses and noted that it will implement energy-efficient measures to alleviate these costs.

Kore intends to mitigate impact of rising costs with built-in average rental escalation at approximately 2.5 per cent per annum.

KDCReit expects minimal impact with inflationary pressures being mitigated with renewals and income escalations. It also has fixed electricity tariffs for Singapore colocation assets for two years from January 2023 and noted that over 90 per cent of electricity costs are passed through to colocation clients while master lease clients contract electricity directly with the power suppliers. 

REIT Watch is a weekly column on The Business Times, read the original version