Impact of OPR rate hike remains neutral for REITs — Analysts
KUALA LUMPUR: The increased overnight policy rate (OPR) is not expected to make a major impact on the real estate investment trusts (REITs), the research arm of MIDF Amanah Investment Bank Bhd (MIDF Research) said.
Of note, the OPR rate was increased by 25 basis points to 3.25 per cent. The last a rate hike was announced on July 10, 2014.
“We do not expect the 25bps hike to impact adversely on REITs based on historical price movement. In fact, unit prices of five out of seven REITs advanced from then until end-2014.
“We believe that investors placed more importance on the earnings outlook of the respective REITs rather than the slight impact from the higher interest rate,” the research team said.
It added, “Although borrowing costs are expected to increase for REITs with high levels of floating rate loans, most of the REITs under our coverage see limited impact from the rate hike as 80 per cent or more of their debts are based on fixed rates.:
It also believed that there would be minimal impact on EPU, which is limited from a decline of 0.2 to 2.1 per cent.
“Among the REITs that we cover, Amanahraya REIT’s loans are all based on floating rates. Conversely, IGB REIT’s floating rate loans was only kept at one per cent.
“REIT managers are working on converting part of their floating rate loans to fixed rate loans to mitigate the risk of potentially higher interest costs in the event of more rate hikes.
“That said, our house economist expects only one rate hike this year,” MIDF Research said.
Even for Amanahraya REIT which has 100 per cent of its loans based on floating rates, the research team expected to see earnings impact limited to a decline of 2.1 per cent.
All in, MIDF Research maintained a ‘neutral’ call on the REITs sector due to the lack of near-term catalysts.