3 Singapore REITs That Could Benefit Most from Rate Cuts

Core Viewpoint - The anticipated interest rate cuts may provide relief for real estate investment trusts (REITs) after a challenging period, particularly benefiting Singapore REITs as financing costs decrease and yield spreads widen against government bonds [1][2]. Group 1: Frasers Logistics & Commercial Trust (FLCT) - FLCT holds a diverse portfolio of logistics and commercial properties across multiple countries, including Singapore, Australia, Germany, the UK, and the Netherlands [3]. - The trust has faced increased financing expenses, with borrowing costs rising to 3.2% in Q3 FY2025 from 2.8% a year prior [3]. - An interest rate cut could alleviate FLCT's debt servicing pressure, stabilize its distribution per unit (DPU), and potentially lead to higher dividends, despite current low occupancy rates of 85.1% for commercial buildings [4]. - FLCT currently offers a distribution yield of 6.7% at a price of S$0.95 [5]. Group 2: Keppel REIT - Keppel REIT focuses on prime properties in Singapore's central business district and stands to benefit from lower interest rates, which would ease financing costs and support higher asset valuations [6]. - The trust's aggregate leverage is over 40%, and its interest coverage ratio (ICR) is relatively low at 2.6 [6]. - With lower interest rates, Keppel REIT could see an improvement in its ICR, although its cost of debt remains at 3.5% [7]. - The DPU for Keppel REIT fell by 2.9% year-on-year for the first half of 2025 due to changes in management's fee structure [7]. - The trust has a high committed occupancy rate of 98.7% for its North Asia portfolio, while its Australia portfolio's occupancy rate is 93.9% [8]. Group 3: Mapletree Pan Asia Commercial Trust (MPACT) - MPACT was formed from the merger of Mapletree Commercial Trust and Mapletree North Asia Commercial Trust and holds a diversified portfolio across several countries [9]. - The trust's cost of borrowing has decreased from 3.54% to 3.32% over the past year, and its leverage ratio improved from 40.5% to 37.9% [10]. - Despite a low ICR of 2.9 times, lower interest rates could enhance this ratio [10]. - MPACT experienced a 3.8% year-on-year decline in its DPU for the first quarter of fiscal 2026, attributed to negative contributions from overseas assets [10]. - The trust is divesting two Japanese assets to focus on Singapore, where its properties maintain high occupancy rates [11]. - MPACT offers a distribution yield of 5.6% at a price of S$1.42 [11]. Group 4: General Insights on REITs - The expected interest rate cuts may not benefit all REITs equally, but Frasers Logistics & Commercial Trust, Keppel REIT, and Mapletree Pan Asia Commercial Trust are positioned to gain due to improved gearing ratios, strong interest coverage, and better debt management [12]. - Investors should assess the fundamentals of REITs, including balance sheet strength, cost of debt, and asset quality, beyond just headline yields [13].