Yet, most market observers and analysts remain somewhat sanguine about the impact of rising interest rates on S-REITs. Perhaps investors should pay particular attention to JP Morgan’s clarion call for caution, and its recommendation to underweight some of the REITs under its coverage.
Capital management is likely to be front and centre of REIT managers’ focus this year. For instance, Digital Core REIT, which was listed in December last year at 88 US cents ($1.22), promptly rose to a high of US$1.20 in the wake of its IPO. However, its unit price is down to 85 US cents as at June 14, below its IPO price. Its capital management was found wanting by investors.
Following the IPO, all Digital Core REIT’s debt was floating, and the manager only announced it had fixed just 50% of its US$550 million of debt, including an undrawn revolving facility of US$250 million, during a business update on April 21. At present, 50% of Digital Core REIT’s debt is still floating at a time when the US Federal Reserve looks set to accelerate the pace of rate hikes.
