Kenny Loh's H2 2025 Outlook:S-REITs Seem to Start a Bull Trend Now

I am honored to be interviewed by Tiger Trade Community, an online brokerage firm. Here is my mid-year review and outlook on the SREITs market. I hope it is helpful for investors who are interested in investing in real estate funds in Singapore.

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Key points for the report:Top 10 SREITs: key features of the winners in the first half of 2025Growth catalysts: What fueled the upswing in SREITs in 2025?Will SREITs outperform US equities in H2 2025?outlook 2025: The path of SREITs amid volatilityMy Picks: SREITs on the path to continued strength

• Actionable strategies: maximizing returns on SREITs

The following is the main text. If you have any questions, please leave a message in the comments section.

1. Characteristics of the top 10 SREITs with the best growth in the first half of 2025.

Basic situation

Halfway through 2025, let’s review the performance of Singapore real estate trusts.

The top 10 S-REITs are predominantly exposed to Singapore-based properties, particularly in the retail and commercial office segments, which have benefited from positive rental reversions and have shown resilience with minimal net asset value (NAV) erosion—unlike REITs with significant overseas exposure.

• $CAPITALAND INTEGRATED COML TR MGMT LTD(CPAMF)$ With 94.5% of its portfolio in Singapore, spanning 21 retail malls and commercial office buildings, CICT serves as a strong proxy for the Singapore commercial real estate market. It is the largest S-REIT by market capitalization at S$15.9 billion.

• $Frasers Centrepoint Trust(FRZCF)$ : Maintains a 100% focus on suburban retail malls (9 malls) in Singapore, which consistently enjoy high foot traffic.

• $CapLand Ascendas REIT(A17U.SI)$ : As the largest industrial REIT (S$12.9 billion market cap), CLAR holds 66% of its assets in Singapore, covering business parks, life science facilities, logistics, industrial properties, and data centers.

• $Mapletree PanAsia Com Tr(N2IU.SI)$ : Has 56% exposure to Singapore across retail and commercial assets.

Because the majority of these REITs’ assets are located in Singapore, foreign exchange risk is significantly reduced compared to REITs with larger overseas portfolios. Additionally, the recent reduction in SORA (Singapore Overnight Rate Average) is expected to lower borrowing costs for SGD-denominated debt, providing further support for DPU (distribution per unit) growth going forward.

2. Why do these SREITS have such a good growth?

Growth Catalysts for S-REITs: DPU and NAV Upside

2.1 Distribution per Unit (DPU) Growth: DPU is expected to improve as borrowing costs decline. The US Federal Reserve is anticipated to cut rates by 50 basis points by the end of 2025, while SORA has already dropped significantly—from 3.6% in Q4 2024 to 1.7% in June 2025. Lower interest rates not only enhance DPU but also facilitate acquisitions. Recent examples include:

• $CapLand Ascendas REIT(A17U.SI)$ acquiring a data center in Singapore,

• $Frasers L&C Tr(BUOU.SI)$  acquiring Northpoint City South Wing,

• $Daiwa Hse Log Tr(DHLU.SI)$ ,  $CapLand Ascott T(HMN.SI)$ , and  $Far East HTrust(Q5T.SI)$  acquiring properties in Japan.

2.2 NAV Recovery: Net asset values (NAVs) are poised to recover, especially for REITs with overseas exposure. In Europe, the ECB is expected to reduce rates by 200 basis points from Q4 2024 to end-2025, spurring investment activity such as:

• $STONEWEG EUROPEAN REIT(CRMWF)$  investing in the Stoneweg Icona Data Center Fund,

• $EliteComREIT GBP(MXNU.SI)$  completing the acquisition of three government-leased properties in the UK.

Previously, higher cap rates led to NAV declines for REITs with US and European assets. As rates fall, cap rates should compress, driving NAVs—and likely share prices—higher.

2.3 Investor Flows: So far in 2025, retail investors have been the primary supporters of S-REITs, as reflected in strong retail fund inflows. Institutional investors have remained on the sidelines, with the US 10-year risk-free rate still elevated around 4.4%.

Historically, the S-REIT index has shown a strong inverse correlation with the US 10-year yield. Should the risk-free rate begin to decline, institutional funds are likely to rotate back into the REIT sector, providing an additional catalyst for price appreciation.

Inverse correlation chart

2.4 Summary: With falling interest rates, improving DPU, and the prospect of NAV recovery—especially for REITs with overseas assets—S-REITs are well positioned for growth in the second half of 2025. Renewed institutional interest could further amplify the upside as global yields trend lower.

3. Will SREITs perform better than US stocks in the second half of 2025?

The Singapore REIT (S-REIT) sector demonstrated notable resilience in the first half of 2025, with several key factors driving its performance relative to the US stock market. While the $S&P 500(.SPX)$ gained 5.5% year-to-date, the iEdge S-REIT Index delivered a 3.2% total return (including dividends), with top performers like $Frasers Hospitality Tr.(FRSRF)$ and $CAPITALAND INTEGRATED COML TR MGMT LTD(CPAMF)$ posting double-digit gains. The S-REIT index offers lower volatility and steady income, making it suitable for conservative or income-focused investors. The S&P 500 provides higher potential returns but with greater volatility, appealing to those seeking capital growth and willing to accept more risk.

It is important to note that the  $S&P 500(.SPX)$ is currently trading at a historical high with a price-to-earnings (P/E) ratio of approximately 28, which is above its long-term average and signals a relatively rich valuation. In contrast, the S-REIT index is trading at about a 20% discount to its book value, indicating more attractive valuations. Given these conditions, the reward-to-risk ratio for S-REITs appears more favorable than for the S&P 500 at this time, as S-REITs offer both yield and potential for capital appreciation while trading at a discount to their underlying assets.

This relative strength stems from three interconnected drivers:

3.1 Monetary Policy Divergence and Interest Rate Relief

Singapore's domestic interest rates declined significantly, with the three-month compounded Singapore Overnight Rate Average (SORA) falling from 3.02% in January to 2.08% by late June. This eased borrowing costs for S-REITs and improved their debt sustainability. In contrast, US markets grappled with Federal Reserve rate-cut delays and policy uncertainty, creating headwinds for US REITs. Lower rates in Singapore also widened S-REIT yield spreads to nearly 4 percentage points above 10-year government bonds, enhancing their income appeal.

3.2Operational Resilience and Sector Fundamentals

S-REITs benefited from robust property-level performance across key sectors:

• Retail and Commercial: CapitaLand Integrated Commercial Trust achieved 10.4% retail rental reversions and 23% year-on-year shopper traffic growth.

• Healthcare and Industrial: ParkwayLife REIT drove revenue growth through acquisitions in Japan and France, while Frasers Centrepoint Trust reported 7.3% net property income growth from asset enhancements. These fundamentals supported Distribution Per Unit (DPU) growth, with analysts projecting 1% DPU expansion for 2025.

3.3Attractive Valuations and Investor Flows

S-REITs traded at a discounted 0.8x price-to-book ratio (below the 10-year average of 1.0x), luring retail investors who contributed S$400 million in net inflows during H1. This contrasted with institutional outflows from US REITs amid global growth concerns. The sector's low correlation (0.08) with the S&P 500 further insulated it from US equity volatility, allowing local factors like Singapore's projected 3% GDP growth to drive performance.

Correlation chart

3.4 Outlook for H2 2025The S-REIT sector's trajectory remains tied to anticipated US rate cuts and sustained operational strength. With Singapore's rate environment likely to stay accommodative and valuations still below historical averages, the sector is positioned for continued resilience

4.The overall expectation for SREITs in 2025

The outlook for S-REITs in the second half of 2025 is cautiously optimistic. Fundamentally, the sector stands to benefit from anticipated interest rate cuts, which should ease financing costs and support a recovery in distribution per unit (DPU) growth. Valuations remain compelling, with the sector trading at about a 20% discount to net asset value (P/NAV), suggesting meaningful upside potential for share prices in addition to attractive DPU yields.

With the recent sharp decline in T-bill and fixed deposit rates, investors who previously relied on these instruments for yield are likely to seek alternative income-generating assets. In the current environment, S-REITs continue to offer one of the highest yields among major asset classes, making them an appealing option for yield-focused investors.

Market attention will remain on the direction of the US 10-year Treasury yield $10-YR T-NOTE - main 2509(ZNmain)$ . Should the risk-free rate fall significantly, institutional investors may rotate into yield sectors such as REITs, further supporting demand and valuations.

From a technical perspective, the FTSE S-REIT Index has broken out of an inverted head and shoulders pattern—a classic reversal signal at market lows—adding a positive technical catalyst to the fundamental case.

Overall, the combination of macroeconomic tailwinds, supportive fundamentals, and constructive technical signals positions S-REITs for potential outperformance in the second half of 2025. That said, this outlook is contingent on a stable macro environment; unexpected shocks or "black swan" events could quickly alter the investment landscape.

5. Top SREITs I think will perform better.

Based on recent data and sector trends, the areas of S-REITs most likely to perform better in the second half of 2025 are:

• Retail S-REITs with a focus on Singapore continue to show resilience, benefiting from positive rental reversions and high occupancy rates. For example, CICT’s retail portfolio reported 99.3% occupancy and ~9% positive rental reversion in early 202557.

• Hospitality S-REITs are outperforming, driven by the ongoing recovery in tourism and event-driven demand, with Frasers Hospitality Trust among the top performers in H1 2025.

• Data centre and logistics REITs are favored for their exposure to secular growth trends in digital infrastructure and e-commerce, with Keppel DC REIT highlighted as a top pick.

• Diversified S-REITs with a strong Singapore base, such as CICT and MPACT, have demonstrated operational resilience and stable income streams, making them attractive in uncertain macro environments.

Industrial REITs with Singapore logistics assets also remain solid, though growth is moderating and business parks face higher vacancy risks.

Office S-REITs with premium, well-located assets in Singapore are holding up, but the overall office segment faces softer demand and new supply pressures.

Summary: Retail, hospitality, data centre/logistics, and diversified S-REITs with a Singapore focus are best positioned for outperformance in the current environment, supported by strong fundamentals, stable demand, and positive sector-specific catalysts.

6 Specific suggestions for SREITs investment

Here are specific suggestions for S-REITs investment in the current market environment:

6.1 Focus on High-Quality, Resilient REITs

• Prioritize REITs with strong sponsors, high-quality portfolios, and a proven track record of stable distributions. These REITs tend to weather market volatility better and are positioned for long-term growth.

6.2 Diversify Across Sectors and Geographies

• Diversify your portfolio by including REITs from different sectors (retail, industrial, data centre, commercial, hospitality) and, where appropriate, with some overseas exposure to manage risk and capture growth opportunities

6.3 Look for Attractive Valuations and Yields

• Assess REITs trading at discounts to NAV and offering competitive dividend yields. For example, some retail and industrial REITs are yielding 5–7% or higher.

• Monitor interest rate trends: Lower rates are expected to reduce borrowing costs and support both DPU growth and capital values.

6.4 Use REIT ETFs for Broad Exposure

• Consider S-REIT ETFs (such as the Lion-Phillip S-REIT ETF) for instant diversification and steady dividend income, especially if you prefer a passive approach or are new to REIT investing.

6.5 Monitor Interest Rate Developments

• Stay alert to US Federal Reserve and MAS policy changes, as further rate cuts could provide tailwinds for S-REITs by lowering financing costs and supporting valuations.

6.6 Practice Due Diligence

• Review each REIT’s financial health, leverage, tenant profile, and lease expiry profile. Favor those with a high proportion of fixed-rate debt and a strong pipeline of yield-accretive acquisitions 

Summary:Focus on high-quality, well-managed REITs in resilient sectors such as data centres, suburban retail, industrial, and commercial real estate.Diversify your holdings to reduce sector-specific risks.Take advantage of attractive yields and potential capital gains, especially as interest rates decline.Consider REIT ETFs for broad, low-cost exposure.Always conduct your own research or consult a financial advisor before investing. If you find it overwhelming to learn all the fundamentals and conduct your own research, consider seeking guidance from a licensed financial advisor or attending SGX REIT educational courses. An experienced investment advisor can help you shorten the learning curve and avoid costly mistakes.

7. To summarize the analysis

• Attractive Valuations,

S-REITs are trading at a 20% discount to book value, offering a better reward-to-risk ratio compared to global equities like the S&P 500, which is at historical highs.

• Growth Catalysts

Falling interest rates (SORA down from 3.6% to 1.7%) are lowering borrowing costs, supporting DPU (distribution per unit) growth and enabling new acquisitions.

• Sector Leaders & Resilience

Top-performing S-REITs are concentrated in Singapore retail, commercial, industrial, and data centres, with reduced forex risk and strong fundamentals.

• Yield Appeal

S-REITs offer higher yields (5–6%) than T-bills, fixed deposits, and SSBs, making them attractive for yield-seeking investors in a low-rate environment.

• Investment Strategies

Focus on high-quality, diversified REITs, consider REIT ETFs for easy exposure, and seek professional advice or SGX courses if you need guidance.

Thank you for all of your reading.