Impact of higher interest expenses on distributions

Exposure to interest rate risk. A hike in borrowing rates would increase interest expense via the REIT’s exposure to floating interest rates. S-REITs’ sensitivity to interest rates hikes is dependent on 2 main factors – their gearing level and the % of interest costs that is hedged into fixed rates. As a general observation, we note that most S-REITs have hedged at least 50% of their debt and have also diversified their sources of funding.

Long debt maturity profile limits re-financing risk. The sector will be renewing 7% and 14% of its debt in FY13F and 14F respectively, which we believe is not excessive, when compared to the total indebtedness of the sector.

We note that FEHT, Cache, SGREIT and FCOT have 0% of debt expiring in FY13 and FY14, and REITs with >50% of debt expiring in FY13 and FY14 are CDREIT, MINT, CREIT and CRCT.