Some REITs have done better than others. For instance, CapitaLand Integrated Commercial Trust(CICT) is up 8.2% this year. Singapore accounts for 95% of CICT’s portfolio by asset value. Singapore’s suburban retail, which anchors CICT’s portfolio, is expected to remain resilient due to its focus on necessity shopping and limited new supply, says the report.
On the office front, the lack of upcoming CBD office supply should mitigate downside risks to office rents, it adds.
CICT’s has a call option to acquire 55% of CapitaSpring by 2026. JP Morgan suggests the REIT could divest properties such as Bukit Panjang Plaza and use its debt headroom to acquire the 55% of CapitaSpring without an equity fund raising.
Singapore-focused REITs with more than 60% Singapore AUM with a larger share of SGD debt are prime beneficiaries of a drop in Sora, JP Morgan says.
The biggest potential beneficiaries are likely to be REITs with lower fixed-rate debt such as CDL Hospitality Trusts, Far East Hospitality Trust, Suntec REIT and Keppel REIT. All three have relatively high levels of Singapore assets, and lower fixed-rate debt, with CDLHT’s fixed rate debt at just 34% of total debt.
For CDLHT, the lower rates could be offset by weakness in the top line, while Suntec REIT’s expiring lower-cost interest swaps may neutralise lower SGD debt cost.
Specifically, JP Morgan says “CapitaLand Ascendas REIT could see a 5% to 9% upside to FY2026 DPU from floating rate savings, although this could be potentially offset by refinancing of lower-cost fixed-debt. Mapletree Industrial Trustcould see limited near-term interest savings as US Sofr which is 61% of its debt has remained firm over the last six months.”
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Frasers Centrepoint Trust’s suburban retail portfolio anchored in Singapore is likely to be a beneficiary of lower rates. In addition, analysts are expecting uplift from the completed AEI at Tampines One.
However, during a results briefing, Richard Ng, CEO of FCT’s manager explained that the REIT is planning to issue $200 million of perpetual securities that could be priced higher than its cost of debt which averaged 3.8% to 3.9% in the Jan-Mar quarter. Despite the higher cost perps that have not been issued yet, the manager guided for interest cost to be below 3.8% for the rest of the year if rates stay low.
On the other hand, “overseas focused or trade exposed REITs have seen a y-o-y decline in DPU with savings on SGD debt offset by vacancies, FX headwinds, higher expenses from the refinancing of low-priced overseas debt as well as a reduction in fees in units and capital top-ups,” the June 11 report indicates.
“Rallies in overseas-focused/trade exposed REITs could fade as investors realise that even with lower SGD borrowing costs, overall debt costs for REITs like Frasers Logistics and Industrial Trust, Mapletree Industrial Trust and Mapletree Logistics Trustmay still rise by 12%, 27% and 8% over the medium term, given higher-cost overseas debt,” JP Morgan cautions.
