Singapore REITs - DBS Research 2025-03-10: Winners In A “Higher For Longer” Rate Environment

Singapore REITs - Winners In A “Higher For Longer” Rate Environment

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Singapore REITs - DBS Group Research | SGinvestors.io
  • S-REITs could have found a “bottom” in the current cycle. Since the last rate cut in December 2024, S-REITs have faced volatility and uncertainty over borrowing costs, as further rate cuts appear delayed, and rates are likely to stay “higher for longer”. Despite dampening sentiment, we draw on recent datapoints and S-REITs’ current valuations (0.8x P/B, FY25F yield of 6.2%), prompting us to believe that it is time to reassess the sector.
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  • sustained and stable net property income (NPI) growth.
  • The combination of these two data-points suggests that S-REITs DPU growth is back on track.

Singapore benchmark rates have been falling steadily.

  • In Singapore, the benchmark interest rate, Singapore Overnight Rate Average (SORA), appears to have already peaked in FY24. The rate is currently stabilising within a range of 2.4% to 2.5%, suggesting relative interest rate stability in the near term.
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Key takeaways from recent results and market discussions

Singapore assets continue to be the main earnings driver.

  • Across the various sub-sectors, Singapore properties have been the main driver of earnings growth, supported by higher occupancy rates and positive rental reversions across the Office, Retail, and Industrial segments. The sustained demand for quality assets in these sectors has contributed to stronger leasing momentum, further boosting revenues.
  • In addition to improving operational metrics, property valuations in Singapore have remained stable, with some assets even recording a marginal increase in value. This uptick in valuations has been driven by stronger underlying cash flows, even though cap rates have stayed stable y-o-y.
  • Cap rate expansion in some markets despite positive rental reversions. Valuations in the US and Australia have continued to decline, even as properties reported positive rental reversions. This trend has been primarily driven by continued cap rate expansion of approximately 25-50bps, which have placed downward pressure on property valuations. However, looking ahead to FY25, cap rates are expected to stabilise, which should help support more stable property valuations in these markets.
  • The operating performance across different real estate sub-sectors in the US and Australia has been mixed. In the US, industrial and logistics assets continue to demonstrate resilience, benefiting from positive rental reversions and stable occupancy rates. Conversely, the office segment remains challenging, with rising vacancy rates and negative rental reversions, though the pace of decline has slowed compared to a year ago.
  • In Australia, occupancy rates and rental growth for industrial and retail properties have continued to trend upwards, reflecting sustained demand. However, the operating performance of office assets remains mixed. Markets such as Sydney and Perth have seen improvements in occupancy and rental rates, whereas Melbourne and Adelaide continue to face challenges, with weaker demand and softer leasing conditions.

Operations in other markets remain relatively stable.

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Above is an excerpt from a report by DBS Group Research.
Clients of DBS may access the full PDF report @ https://www.dbs.com/insightsdirect/.



Dale LAI NA DBS Group Research | Derek TAN DBS Group Research | https://www.dbs.com/insightsdirect/ 2025-03-10



Read More Analysis On Singapore REITs (S-REITs):
Analyst Reports on Singapore REIT Sector

Check Out Also The Summary Of:
S-REIT Share Price Performance
S-REIT Target Prices & Ratings





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