OCBC says any impending interest rates hike will add on to borrowing costs of S-REITs and affect distributable income for unitholders. “Any rate hike is likely to have a greater impact on S-REITs that 1) have a lower percentage of fixed rate borrowings, and 2) have a substantial amount of borrowings maturing near the interest rate hike period (likely 2H11-FY12).”
It says overall, “fundamentals for the majority of the S-REITs remain strong and any increase in interest rate will have some but not material impact on S-REITs’ financials, since most have already expected or are preparing for it.”
The house remains positive on the medium-term prospects of S-REITs and it is confident that most REIT managers will optimize their financial means to protect the trusts from further interest rate and refinancing risks. The house maintains an Overweight call on S-REITs.
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