US tariffs put spotlight on industrial S-Reits' upcoming H1 earnings
'Rental growth in the industrial sector may ease in the current tariff-related uncertainty,' said Xavier Lee, an equity analyst from Morningstar.
The US administration has set an Aug 1 deadline to conclude tariff negotiations with other countries. After that, exports to the US from these countries will face new tariffs, starting at a baseline rate of 10 per cent.
However, Krishna Guha, analyst at Maybank Securities, said that the impact on the industrial sub-sector could be cushioned by the 'front-loading' of inventory – where suppliers stock up on inventory early – to mitigate changes in tariffs.
Industrial S-Reits posted mixed figures in their most recent results. While Mapletree Logistics Trust saw its Q4 FY2025 distribution per unit (DPU) fall 11.6 per cent, CapitaLand Ascendas Reit posted a 3.2 per cent rise in its FY2024 H2 DPU.
The reporting season for S-Reits kicks off on Jul 23 with Sabana Industrial Reit reporting its H1 business update after market close. Others include Digital Core Reit on the same day, as well as Suntec Reit on Jul 24.
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More counters will report their H1 financial results the following week, including Keppel Pacific Oak US Reit on Jul 29, Keppel Reit on Jul 30 and Capitaland Integrated Commercial Trust on Aug 5.
S-Reits under the Frasers and Mapletree groups will be reporting their Q3 and Q1 results, respectively. Mapletree Industrial Trust will release its results on Jul 28 while Frasers Centrepoint Trust will report on Jul 24.
Besides the industrial sector, Morningstar's Lee said that leasing demand for office S-Reits could also fall given the economic uncertainty from ongoing trade tensions. But unlike the industrial sector, the tight office supply in Singapore could offset weak demand for office spaces, he added.
For the hospitality sector, Maybank's Guha was of the view that it may see some positive impact from recent concerts, although the US tariffs could weigh down business and leisure travel.
Guha added that Singapore-focused S-Reits will have a 'home advantage' as they are sheltered from the impact of the broader growth slowdown due to trade tensions.
More S-Reits to post DPU growth
Overall, more S-Reits are likely to report growth in their DPU as they benefit from year-on-year interest cost savings, said Darren Chan, senior research analyst at Phillip Securities Research.
He noted that S-Reits are benefiting from last year's US Federal Reserve rate cuts, which lowered borrowing rates by 100 basis points. The three-month Sora, an interest-rate benchmark for Singapore dollar loans, has also fallen below 2 per cent – its lowest level since 2022.
'Looking ahead, S-Reits are expected to enjoy further interest cost savings as more rate cuts are anticipated later this year,' said Chan.
On the other hand, Morningstar's Lee believes that US Fed rate cuts may have limited impact on S-Reits this year. This is because most of these Reits have a larger share of fixed-rate debt, which is less sensitive to rate changes than floating-rate debt. Among the S-Reits covered by Morningstar, the proportion of fixed-rate debt ranges from 58 to 83 per cent of total debt.
'However, the lower interest rates should start becoming meaningful in the subsequent 12 to 18 months as S-Reits refinance expiring debt,' said Lee.
Nevertheless, he agreed with other analysts that the majority of S-Reits will post positive DPU growth of between 1 and 7 per cent for FY2025. This will mainly be driven by a mix of organic improvements to S-Reits' portfolio and acquisitions, rather than interest cost savings, said Chan.
Maybank Securities maintains its positive view of S-Reits on the back of falling interest rates and 10-year yield. These factors should support these Reits' distributions and valuation even if there is pressure on their revenue, said Guha.
Maybank Securities prefers, in the following order: retail, office, industrial and hospitality sub-sectors.
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