JPMorgan, Macquarie bet on S-Reits amid falling borrowing costs, MAS mandates

[SINGAPORE] Singapore-listed real estate investment trusts (S-Reits) could gain from falling interest rates, particularly those with a domestic focus, as well as The Monetary Authority of Singapore's (MAS) initiatives, reports from JPMorgan and Macquarie indicated.
This comes as declines in various interest rates, such as the Singapore Overnight Rate Average (Sora) and treasury bills, have lowered borrowing costs, providing upsides for S-Reits, JPMorgan reported on Sunday (Jun 15).
'We believe this should generate upside for Singapore-focused Reits or stocks with resilient cashflows or leveraged balance sheets,' JPMorgan analysts said.
Tariff risks, a weakened greenback, export front-loading, lowered commodity prices, capital inflows and monetary easing are among the factors that have spurred sharp falls in Singapore interest rates, they added.
They pointed to Singapore-focused S-Reits with a larger share of Singapore dollar debt as prime beneficiaries of declines in Sora.
With revenue growth, such S-Reits could get distribution per unit (DPU) improvements, the analysts said.
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However, overseas-focused S-Reits or those more exposed to trade have clocked year-on-year declines in DPU with savings from Singdollar debt being offset by vacancies, foreign exchange headwinds and higher costs from refinancing low-priced overseas debt.
A Macquarie Capital report dated Jun 16 also named some S-Reits, in addition to stocks, as potential winners from new MAS initiatives. Macquarie mentioned the central bank's Equity Market Development Programme that is set to channel S$5 billion to local fund managers, and other private capital to be injected into other mandates.
Domestic-focused S-Reits win on lowered rates, borrowing costs
CapitaLand Integrated Commercial Trust, CapitaLand Ascendas Reit (Clar), Keppel Data Centre Reit (KDCReit), Frasers Centrepoint Trust were among JPMorgan's top picks for S-Reits.
Its top picks were Parkway Life Reit (PReit), Clar and KDCReit, which is set to join the Straits Times Index on Jun 23.
Jayden Vantarakis, head of Asean Equity Research at Macquarie Capital, highlighted that PReit as a possible beneficiary. It has had an 'impeccable track record of steady growth since (its) initial public offering without raising funds' while facing limited downside risks, he said.
Vantarakis said: 'We expect a rare quantum leap of PReit's Singapore rental growth in FY2026 once enhancements to Mount Elizabeth Orchard Hospital are completed.'
Bank profits may suffer but fund inflows stay strong
Broad monetary easing poses a 'significant headwind' for Singapore banks' profitability as it could lower net interest margin (NIM), JPMorgan said.
The investment banking group foresees a 12 basis point year-on-year compression in NIM for 2025, with another 10 basis points for 2026.
However, lowered rates have also accelerated flows into Singapore-dedicated funds over the past 12 months, mitigating the blow. Given this, JPMorgan analysts remained neutral on the sector.
'While banks will bear the brunt of lower interest rates, we believe the sector could still be supported by resilient yields and strong inflows from domestic funds subscriptions,' they said.
MAS' S$5 billion inflow to give small- to mid- caps a short-run boost
The S$5 billion inflow from the Monetary Authority of Singapore's Equity Market Development Programme could lead small- to mid- cap stocks to outperform in the short-run, JPMorgan said.
As part of Singapore's equity market reform, the scheme aims to channel S$5 billion to fund managers focused on Singapore listed equities and to broaden investor participation beyond large-cap stocks. It prioritises funds with a higher weighting in small- to mid- cap stocks.
However, a 'significant outperformance' over large cap stocks is unlikely, given higher multiples, uncertain profitability and lower liquidity and growth of such stocks.
'In our view, stocks with a good track record of earnings growth and quality balance sheets would attract additional flows,' JPMorgan analysts said.
Quality mid-cap stocks and those with upside potential from asset recycling stand to be key beneficiaries, the investment banking group added.

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