From the schedule above, there is approximately $x billion of debt refinancing due within the next year. With the credit crisis affecting all regions of the world, there is much concern over whether the REITS are able to roll over their debts. From our understanding, bank term loans usually have a tenor of 2 years or less so the debts that are maturing within the next year were contracted in either 2006 or 2007. Before the credit crisis manifested, borrowers were paying margins of double-digit bps spread above the reference rate. Most borrowers had also fixed a portion of their debt to a fixed rate through various derivative instruments, so an all-in interest cost would approximately be in the range of 2.5-3.5%. We believe REITS will be able to secure or extend their credit facility, the only drawback will be a substantially higher margin on the loans. The indication of the new margin will be in the range of 200- 250basis points. If we take the October 3-month SOR as the reference rate, new loans will cost 3.5-4.0%. And not ruling out fluctuations in the interest rate environment, if the borrowers did not hedge their reference cost, they may be subjected to even higher interest expense if the reference rate increases.

Conclusion. The SREIT sector is operating in a trying environment with no shortterm catalyst in sight. Falling rentals coupled with higher interest expense are going to impact distributions. We are of the view that DPU will be impacted, however there is a net-off effect from positive rental reversion with the softening market rates and higher interest expenses. Because of the unusual situation; refinancing requirement at a time of tight credit environment and worsening economy, the confluence of factors has resulted in very depressed share prices and historically high dividend yields. We do not think share price to rebound to the level at the beginning of the
year, and advise investing in REITs for the long term investor who is willing to sit out the recession to take advantage of the high dividend yield.

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