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As debt costs inch higher, highly rated REITs offer safe harbour

Goola Warden
Goola Warden9/17/2018 07:30 AM GMT+08  • 10 min read
As debt costs inch higher, highly rated REITs offer safe harbour
SINGAPORE (Sept 17): Rising interest rates have caused the cost of debt for real estate investment trusts to rise, but the amount remains manageable. Ironically, the cost of debt has fallen for some REITs, notably Parkway Life REIT. This is because it to
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SINGAPORE (Sept 17): Rising interest rates have caused the cost of debt for real estate investment trusts to rise, but the amount remains manageable. Ironically, the cost of debt has fallen for some REITs, notably Parkway Life REIT. This is because it took on yen debt for its Japanese acquisitions. CapitaLand Mall Trust’s (CMT) cost of debt is down 10 basis points from last December to 3.1% as at June 30. This is without giving up its weighted average debt to maturity, which stays at 5.2 years, and is the longest time frame among the REITs. The cost of debt of both Ascendas REIT and CapitaLand Commercial Trust (CCT) remains the same.

Highly rated REITs can still get competitive costs of debt. On Sept 4, RCS Trust’s trustee issued $150 million notes due in September 2024 at just 3.06%. The notes carry an A-rating by Standard & Poor’s. RCS Trust, which holds Raffles City, is 60% owned by CCT, and 40% by CMT. The pricing of RCS Trust’s notes indicates that demand for investment-grade credit exists.

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