Impact of decrease in interest rate on reit return(main business in foreign country)

[OngHuatHuat]

Anyone here familiar with the above scenario?
Decrease in interest rate normally means higher income due to lower interest expenses, but at the same time, decrease in interest rate also mean weaker currency which translates to lower income denominated in sgd.

So net effect = total cancellation?
Or one effect outweighs another ?

Any comment?

@shiny things

 

[Shiny Things]

Anyone here familiar with the above scenario?
Decrease in interest rate normally means higher income due to lower interest expenses, but at the same time, decrease in interest rate also mean weaker currency which translates to lower income denominated in sgd.

So net effect = total cancellation?
Or one effect outweighs another ?

Any comment?

@shiny things

OK, this could get interesting. I'd really only be spitballing, but, one question - are we assuming the REIT is listed in SGD, but owns assets in (say) Japan, and funds in JPY (so you don't have a potentially disastrous asset-liability currency mismatch)?

 

[OngHuatHuat]

I think I will just tell you the reit name:

Religare health trust.

Owns assets in India. Receive income in India rupee.
Listed in sgx. Dividend pay out also in sgd.

OK, this could get interesting. I'd really only be spitballing, but, one question - are we assuming the REIT is listed in SGD, but owns assets in (say) Japan, and funds in JPY (so you don't have a potentially disastrous asset-liability currency mismatch)?

 

[w1rbelw1nd]

I think I will just tell you the reit name:

Religare health trust.

Owns assets in India. Receive income in India rupee.
Listed in sgx. Dividend pay out also in sgd.

http://rhtrust.listedcompany.com/misc/ar2015/ar2015.pdf

Crtl + F "hedging", and you will get your answer.

 

[Shiny Things]

I think I will just tell you the reit name:

Religare health trust.

Owns assets in India. Receive income in India rupee.
Listed in sgx. Dividend pay out also in sgd.

So Religare gets to its INR borrowings in a bit of a weird way - it's borrowed SGD through a term loan from DBS, and it's swapping it into INR through an FX forward. I'm going to assume they're not getting ripped off on the cross-currency basis there, compared to just borrowing INR. Anyway.

You'd think lower interest rates would be net positive for REITs (it benefits them on the liability side and the asset side) but I seem to remember looking at this a few months ago and finding that there wasn't much correlation between interest rates and REIT returns. But a lower interest rate is definitely a drag on the currency, and that's going to make RHT's assets worth less in SGD terms. So I'm going with "lower INR interest rates is probably a net negative for the RHT share price", but it's not going to be a particularly strong relationship.

 

[OngHuatHuat]

Thanks for the reply.
I always had this thought about lower interest rate means lower financial expenses for reits or business trust.

So Religare gets to its INR borrowings in a bit of a weird way - it's borrowed SGD through a term loan from DBS, and it's swapping it into INR through an FX forward. I'm going to assume they're not getting ripped off on the cross-currency basis there, compared to just borrowing INR. Anyway.

You'd think lower interest rates would be net positive for REITs (it benefits them on the liability side and the asset side) but I seem to remember looking at this a few months ago and finding that there wasn't much correlation between interest rates and REIT returns. But a lower interest rate is definitely a drag on the currency, and that's going to make RHT's assets worth less in SGD terms. So I'm going with "lower INR interest rates is probably a net negative for the RHT share price", but it's not going to be a particularly strong relationship.