Rising interest rates led to higher finance costs, moderating distribution per unit levels. They also caused discount rates to rise. If higher discount rates are not offset by higher rents and lower costs which would result in higher cash flows from REIT assets, valuations would fall.
So far this year, two S-REITs have halted distributions for one reason or another. A third S-REIT is suspended. And to date, internalisation hasn’t been the panacea it is made out to be.
Rising risk-free rates, which materialised against a backdrop of rising policy rates — in particular the Federal Funds Rate which rose from near-zero to 5.5% in around 18 months — have harmed the cost of capital.
