Are Singapore REITs Ready to Soar as Rates Fall?

Core Viewpoint - Singapore REITs have faced significant challenges due to rising interest rates, which have increased financing costs and pressured distributions to unitholders [1][3][8] Group 1: Impact of Rising Interest Rates - Higher interest rates have led to increased financing costs, resulting in more cash being allocated to interest payments rather than unitholder distributions [1][3] - Deal activity in the REIT sector has slowed as higher funding costs made transactions less economically viable [1][3] - Many REITs experienced a decline in distributions per unit (DPU), with unit prices following suit [1][3] Group 2: Specific REIT Performance - Frasers Logistics & Commercial Trust (FLCT) saw its DPU for FY2025 fall to S$0.0595, a 12.5% year-on-year decline, despite improved portfolio occupancy of 95.1% [4][5] - Mapletree Logistics Trust (MLT) reported a DPU of S$0.01815 for 2Q FY25/26, a 10.5% decrease year-on-year, although it managed to maintain a 96.1% occupancy rate [6][7] Group 3: Outlook with Falling Interest Rates - As interest rates begin to fall, Singapore REITs could benefit significantly from improved financing conditions, potentially leading to a recovery in distributions [2][12] - Commercial REITs like CapitaLand Integrated Commercial Trust (CICT) and Mapletree Pan Asia Commercial Trust (MPACT) are expected to see cash flow improvements as borrowing costs decrease [9][10] - CICT managed to grow its DPU by 3.5% year-on-year to S$0.0562 in the first half of 2025, supported by strong occupancy [10] Group 4: Investor Considerations - Investors should focus on the financial health of REITs, including the duration of debts and the proportion of fixed-rate debt, as these factors will influence the benefits from refinancing [14][15] - The quality of a REIT's holdings and occupancy rates remain crucial for maintaining consistent cash flow [15][16] - A shift in the macro environment with falling interest rates could renew interest in REITs, particularly those with strong financial backing and solid property portfolios [16][17]