It’s no secret that soaring interest rates have negatively impacted the REIT sector.
Between 2022 to the present, the US Federal Reserve raised interest rates sharply from near zero to the current range of between 5.25% to 5.5%.
The good news is that interest rates could be set to decline soon.
Signs are pointing to a potential reduction in interest rates when officials meet from 17-18 September.
Here are five Singapore REITs that could see their distributions rise if interest rates do get slashed.
Cromwell European REIT (SGX: CWBU)
Cromwell European REIT, or CEREIT, owns a portfolio of more than 100 predominantly freehold properties in countries such as France, the Netherlands, Italy, Finland, Slovakia, and Denmark, among others.
Its portfolio is valued at €2.2 billion as of 30 June 2024.
For the first half of 2024 (1H 2024), CEREIT saw gross revenue dip by 1.9% year on year to €106.3 million because of divested assets but offset by better office performance in the Netherlands.
Net property income (NPI) declined by 4.4% year on year to €65.5 million.
The REIT’s net finance costs jumped 11% year on year to €17.4 million for 1H 2024.
As a result, distribution per unit (DPU) fell 9.5% year on year to €0.0705.
Despite the dip, CEREIT maintained a high portfolio occupancy rate of 93%.
Portfolio rental reversion was also positive at 5.2% for 1H 2024, with tenant retention at 68.6%.
Gearing, however, was slightly above the 40% level at 40.5%, but the all-in-interest rate for its loans stood at just 3.16%.
Mapletree Pan Asia Commercial Trust (SGX: N2IU)
Mapletree Pan Asia Commercial Trust, or MPACT, is a retail and commercial REIT with a portfolio of 17 properties valued at S$15.7 billion as of 31 March 2024.
The REIT continued to be buffeted by high finance costs when it released its earnings for the first quarter of fiscal 2025 (1Q FY2025).
Gross revenue slid by 0.2% year on year to S$236.7 million but NPI managed to eke out a slight 0.1% year-on-year gain to S$179.4 million.
Finance costs, however, rose 9.8% year on year to S$59.4 million, resulting in DPU dipping by 4.1% year on year to S$0.0209.
MPACT’s operating metrics stood strong, though.
Portfolio committed occupancy came in at 94% as of 30 June 2024 while rental reversion was positive at 5.2%.
Both shopper traffic and tenant sales at MPACT’s key retail malls, VivoCity and Festival Walk saw year-on-year declines because of higher outbound travel.
VivoCity’s phased upgrading at Basement 2 is progressing smoothly and should be completed by the end of 2025 and help create additional retail floor area while improving the trade mix.
OUE REIT (SGX: TS0U)
OUE REIT is a diversified REIT that owns five properties in Singapore and one in Shanghai.
The REIT has assets under management (AUM) of S$6.3 billion as of 31 December 2023.
For 1H 2024, revenue improved by 5.7% year on year to S$146.7 million, driven by the resilient Singapore office sector and improved contributions from the hospitality assets.
NPI inched up 1.6% year on year to S$117.1 million.
OUE REIT’s finance costs, however, climbed 18.5% year on year to S$54.7 million.
As a result, DPU for 1H 2024 fell 11.4% year on year to S$0.0093.
The REIT’s Singapore office division saw committed occupancy at 95.2% as of 30 June 2024 and recorded a positive rental reversion of 11.7%.
In line with the continued tourism recovery, OUE REIT’s hospitality assets posted a 15.8% year-on-year increase in revenue per available room (RevPAR) to S$269.
Mandarin Gallery, the retail podium of Hilton Singapore Orchard, registered an impressive rental reversion of +28.4%.
United Hampshire US REIT (SGX: ODBU)
United Hampshire US REIT, or UHREIT, is a US retail REIT with a portfolio of 20 grocery and necessity properties along with two self-storage properties.
The portfolio was worth around US$768.3 million as of 31 December 2023.
1H 2024 saw the REIT’s revenue increase by 2.4% year on year to US$36.9 million.
NPI took a slight 1.7% year-on-year dip to US$25.4 million.
The REIT saw its finance costs balloon by 27% year on year to US$9.6 million for 1H 2024, thereby crimping its distributable income.
In addition, UHREIT’s management fees are also paid in cash, further reducing the amount of distributable income.
Because of these two factors, DPU plunged by 24.2% year on year to US$0.0201.
Occupancy rates remained healthy for grocery and necessity properties (96.3%) and self-storage properties (94.3%).
The tenant retention rate stayed high at 92% as of 30 June 2024.
During 1H 2024, UHREIT conducted an opportunistic divestment of Freestanding Lowe’s and Freestanding Sam’s Club property for US$36.5 million.
The sale price was at a 17.5% premium to the REIT’s original purchase price of US$31.1 million.
Keppel REIT (SGX: K71U)
Keppel REIT has a portfolio of 13 commercial properties spread out across Australia (7), Singapore (4), South Korea (1), and Japan (1).
The REIT’s portfolio value stood at over S$9 billion as of 31 December 2023.
1H 2024 saw healthy growth in both property income and NPI.
Property income rose 8.9% year on year to S$125.1 million while NPI attributable to unitholders increased by 8% year on year to S$87.2 million.
Borrowing costs, however, surged by close to 30% year on year to S$41.3 million.
The result is that DPU (after factoring in the anniversary distribution of S$10 million) slid by 3.4% year on year to S$0.028.
Keppel REIT maintained a high portfolio occupancy of 97% as of 30 June 2024 and registered a strong positive rental reversion of 9.3% for 1H 2024.
The manager is committed to optimising the REIT’s portfolio through strategic acquisitions and divestments.
The team will also implement initiatives to future-proof assets and enhance sustainability.
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Disclosure: Royston Yang does not own shares in any of the companies mentioned.
