Singapore Business Review release an article on the impact of interest hike on Singapore REIT’s distribution capability. The figures presented indicates the drop in DPU to be in the range of 0.2% to 1% with US FED rate hike of 25 basis point. Take note that drop in DPU of 1% does not mean your dividend yield will drop 1%. For example if a REIT is selling at $1 with a DPU of 5 cents, translating to a dividend yield of 5%. If DPU drops by 1% to 4.95 cents, your yield decrease to 4.95%. Hardly a big change at all which bring us to the performance of Singapore listed REITs and business trusts as shown in below table. As you can see, their performance as a group are not good with a near 20% drop from their 52 week high. They had however rebound ~10.5% from their 52 week low. Obviously, the market has already factored in the impact of rate hike into the share price of these listed REIT and business trusts prior to the actual rate hike. 1% drop in DPU versus 20% drop in share price. There seems to be a mismatch of expectation. Collectively, the group average yield is 7.5% and is trading at ~13.5% discount to their book value. If there is an ETF/Index Fund which we can purchase, this will provide some potential decent returns for us in the future in terms of yearly dividends and potential capital gains. Alternatively, we can screen out some of those poor candidates from the list and cherry pick the good ones to narrow down the list to potentially further boost our returns. We have highlighted an easy and quick method in our previous post for your study.
Appreciate any comments from our readers.
The Valumetrics Team
————————————————————-
Singapore Business Review:
Expect DPU cuts once higher rates kick in.
Markets expect that the US Federal Reserve will raise benchmark interest rates by 25 base points at its meeting this week.
Although it is expected that real estate investment trusts (REITs) will be negatively impacted once rates rise, Credit Suisse notes that some REITs are more vulnerable than others.
Credit Suisse expects that a 25 bp rise in rates will trim Keppel REIT’s distribution per unit (DPU) by -1.1%, while Suntec REIT will see its DPU dip by -0.8%.
Meanwhile, CDL Hospitality Trusts and Ascendas REIT will both experience a -0.7% drop in DPU, while OUE Hospitality Trust will see a contraction of -0.6%. Mapletree Commercial Trust, Mapletree Logistics Trust and Ascott Residence Trust will all see a DPU drop of -0.5%.
Other REITs will experience more marginal declines, such as CapitaCommercial Trust with a -0.3% contraction. Meanwhile, SPH REIT, Mapletree Industrial Trust, and Frasers Centrepoint Trust will all see a -0.2% DPU contraction.
“We find heavily geared stocks with unhedged US foreign debt, importers, and those with revenues and COGS denominated in mismatched-currencies are likely to be the most affected by a US hike. Banks may benefit from a widening of loan spreads,” Credit Suisse said.
Valumetrics.co 
[…] Comments: This is inline with our previous post on impact of interest rate on REIT’s distribution. The impact will be minimal posing a good […]
LikeLike