US 2/10 yield curve, manages a close above the downtrend. This is the first pro-growth signal from the bond market is nearly a decade.
As discussed at length recently we are concerned that with Hong Kong & Singapore monetary policy being run by the US, it is going to be very difficult to control liquidity and asset prices as the cost of capital increases. The 55bps move in US 10 year bonds over the last month therefore has big implications for the Asian REIT sector.
Singapore and Hong Kong REITS have been bought for their dividend yield. Problem is, they are too leveraged, so asset prices fall on higher rates, leverage blows out, putting dividends at risk.
Our top picks Asian REIT shorts remain 1) MINT SP; 2) KREIT; 3) 2778 HK & CRCT top of smaller names
MINT Mapletree Industrial Trust - Highly geared with 82% of Debt rolling in 19 months. Mostly bank loans (1.61% indicative rate 91% swap hedged to fix). Expensive Book value.
KREIT Keppel Reit – Highly geared and high sensitivity to interest rate moves with 28% of Debt rolling in 19 months. Weighted ave current cost 2.2%. 22% of Debt fixed (1.9-3%), 37% covered by swaps with rest floating (0.75-1.9%+SOR).
SUN Suntec Reit – Highly geared and high sensitivity to interest rate moves with 39% of Debt rolling in 19 months. Effective total rate 3-3.65%
CRCT Capita Retail – small but high gearing with 100% of debt rolling off within 19 months. Current 2% effective rate, mainly floating but 65% swaps pay fixed receive variable. Mainly SHIBOR rates.
In general Singapore REITS although less expensive on most metrics they are significantly more geared (47% Net Debt/ Equity Vs 29% for HK) and have a riskier Debt profile with on average 42% of their debt becoming due in the next 19 months (Vs 30% in HK).
2778 HK Champion REIT – Less geared that Singapore peers but 97% of its Debt due within 19 months. 32% is convertible Bond due in 1 month. Rest term loan swap fixed to 1.17% effective rate mostly due within 19 months.
405 HK Yuexiu – Very highly geared with 31% of Debt due in 19 months. No swap contracts currently and fully drawn on all funding. 50% HK, 50% RMB debt.
Please call for more detail and analysis
