Trouble in Singapore REIT space: MapleTree and Keppel REITs Report Declining DPUs

In a flurry of results today, many Singapore REITs reported lower DPUs in their latest Financial Results

The reason is simple - due to the rising interest cost these REITs faces. Many of our local REITs interest expenses are now rising as their old debts are now being renewed at higher rates. Let's look at Keppel and Mapletree interest rate snapshot of their debt profile.

Keppel REIT Below

As it can be seen the magnitude of interest rate increase for many Singapore REITs have moved remarkably high. This is due to many of these REITs having hedged their interest rates. It is now only with the expiration of the hedges, do we see the true cost of interest on Singapore REITs.

Bearish on Singapore REITs

Based at where we are, I expect many Singapore REITs to face an eventual financing cost of 4% per annum. This means many REITs will face falling interest coverage ratio of 2.0-2.5 times. This is not good.

Investors in Singapore REITs should prepare to see falling DPU as time passes.

Will Reduction in US Interest Rates Help Singapore REITs?

Only to a small degree.

This is because Singapore interest rates are already comparatively low to US's and these REITs are already employing a strategy of borrowing from countries with low interest rates to finance their debts. 

Hence the reduction in US interest rates will have a small effect of their debt profile. In fact, despite USA starting to reduce debts, I feel Singapore REITs will start to see escalating interest expenses and face financial stress. This is due to their debt profile.

Avoid Singapore REITs, go for Hong Kong etc.

Outside of Singapore, REITs in US, UK and Hong Kong have gone through this painful phase; on the other hand, Singapore REITs painful phase has just started. As an investor, I feel that an avoidance of Singapore REIT should be considered now, foreign REITs such as LINK reit, Keppel Pacific Oak etc are better investment avenues. 

If I were to place a bet, LINK REIT (Hong Kong 0823 stock code) is the best in its class. It sports an 8% dividend yield and has a stronger balance sheet, lower leverage/debt than Singapore REITs and stronger interest coverage ratio expenses. The REIT owns Jurong Point and AMK hub in Singapore.

<Author is invested in LINK REIT>