- We believe S-REITs have turned the corner with a brighter 2026 outlook – aided by a moderating interest rate outlook, resilient economy, and government policies to revitalise the local market. Fund flows and investor interest in S-REITs have markedly improved amidst strong S$ liquidity and lower alternate yield options.
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- Valuations are attractive – the sector is trading closer to book and offers ~6% yields.
S-REITs – balance sheet and operational performance
~90% of S-REITs saw flat to moderate interest cost declines q-o-q as at 1H.
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- Currently, the decline in SORA has largely benefited S-REITs with a larger proportion of S$-denominated floating rate loans. In addition, most of the S-REITs also noted slight reductions in bank loan margins amid a flush of liquidity in the banking system.
- REITs that saw the highest declines in interest cost q-o-q include CDL Hospitality Trusts (SGX:J85) (-30bps), Sasseur REIT (SGX:CRPU) (-20bps), BHG Retail REIT (SGX:BMGU) (-20bps), and Stoneweg Europe Stapled Trust (SGX:SET) (-19bps).
- S-REIT sector gearing remains largely stable, with average sector gearing standing at ~39%. Core NPIs for the majority of the S-REITs have also been on the uptrend, aided by stable occupancy levels and positive rent reversions.
Key catalysts and trends driving continued sector recovery:
- Continuing declines in domestic rates (RHB economists expect the Singapore Overnight Rate Average (SORA) 3-month (3M) rate to decline to 0.85% and 0.68% in 2025 and 2026),
- Organic and inorganic income growth for the S-REIT sector with a resilient economic outlook,
- Stable S$ benefitting from capital flight to safety, and
- The Government’s equity policy support measures to revitalise local market, which we believe in particular could improve liquidity and narrow valuation gaps for small-to mid-cap S-REITs. Based on our latest discussions with the authorities, we note that funds under the S$5bn Equity Market Development Programme or EQDP are fully eligible to invest in the S-REIT sector with a focus beyond large-cap names. The recent launch of new iEdge Singapore Next 50 Indices also includes 15 S-REIT constituents, which in our view increases visibility and likely improves liquidity for mid-cap S-REITs.
- Additionally, based on current US tariff policies, we see Singapore’s real estate sector being a slight positive beneficiary, given that tariff rates are comparably lower than its neighbours – in our view this could drive firms to set up or expand their presences here.
S-REITs – Acquisitions and Divestments
Large acquisitions making a comeback.
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