Industrial REITs in Singapore have long been a market favorite, with stable demand and inflation-linked leases.
But with US tariffs looming and the critical August 1 date casting a shadow over trade flows and manufacturing rents, investors are watching first-half results closely for signs of a slowdown in the industrial REIT sector.
Meanwhile, $NTT DC REIT USD(NTDU.SI)$ and Centurion's upcoming accommodation REITs are also attracting attention.
Here are eight questions I answered on Money FM 89.3's Money and Me show last Friday, July 18:
Q1. Who leads and who lags in the performance of Singapore REITs in the first half of 2025?
I summarize it in five points.
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First: In terms of trend, the iEdge S-REIT Index has been sideways in the first half of the year and is currently building an "inverted head and shoulders bottom" pattern, which is usually a reversal signal at the bottom. The current index is testing the neckline. If subsequent performance can drive a breakthrough, it is expected to start a bull market, which is what I focus on.
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Second: DPU (distribution per unit) performance diverged in the first half of the year: DPU of most REITs continued to decline in 2023-2024, but a turning point appeared in the last quarter;
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Third: Some REITs have resumed positive growth, mainly due to interest rate cuts; however, there are still REITs that have not fully benefited. I expect the 100 basis point interest rate cut this quarter to have a more obvious effect.
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Fourth: Most of the top ten leaders are Singapore local asset REITs due to strong rent increases in the retail and office sectors.
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Fifth: In terms of valuation, the overall sector is still about 20% lower than the historical average, with a dividend yield of about 6%, and a risk premium of about 4% higher than the 10-year Singapore government bond. Let's summarize the first half here.
Source: REITsavvy.com
Q2. Talk about the outlook for the second half and potential headwinds.
In the second half of the year, I will focus on two main points:
The first is the operational level. Most REITs will begin to enjoy the dividends of interest rate cuts, because the European Central Bank, the Bank of England, the Bank of Canada, etc. have already cut interest rates. The decline in interest expenses is expected to drive DPU back up. However, it should be noted that not all REITs can benefit immediately. Through my "bubble chart", we can see that in the past few years, REIT managers have extended the debt period to 3-4 years, and 70-80% are fixed interest rates. Although this protects the interest rate hike cycle, it makes it impossible to benefit immediately in the early stage of interest rate cuts. Therefore, whether CFOs can seize the window to optimize the capital structure depends on their ability.
The second is the emotional side. At present, the risk-free interest rate in the United States is still as high as 4.45%, which is highly negatively correlated with the REIT index, and institutional funds have not yet returned. However, Singapore retail investors have shown a net inflow this year, because the one-year T-bill interest rate has fallen to about 1.8%, and the "tug-of-war" between retail investors and institutions will affect the future market. In addition, the direction of tariffs and their impact on some REITs are also worth keeping a close eye on.
Next, focus on $NTT DC REIT USD(NTDU.SI)$ . As Singapore's largest IPO since 2017, it attracted much attention but had a dull debut: it opened at $1.03, the IPO price was $1.00, and the latest price was $0.945.
Q3. Despite the global data center demand, SGX's listing performance is still lukewarm. How should we evaluate its investor acceptance and valuation?
In terms of valuation, the IPO price is 1.05 times the price-to-book ratio, which is still reasonable compared to its peer Capital DC, and the dividend rate is also fine.
However, the stock price has been under pressure for several days. Last Friday morning, a large order of 1.5 million shares was sold at $0.965, which is suspected to be institutional profit-taking. Although the IPO subscription multiple reached 9.8 times, it did not translate into subsequent momentum. Under the stable price mechanism, Merrill Lynch has bought 18 million shares but still cannot support the IPO price. Retail investors also panicked and sold, and there is still pressure in the short term.
Q4. Does SGX have insufficient appetite for REIT IPOs? Compared with Hong Kong, the popularity seems to be limited.
This year, many REITs plan to go public. If institutions do not enter the market, it may be difficult for retail investors to digest it. Turn to Centurion: It plans to launch a S$1.8 billion accommodation REIT - Centurion Accommodation REIT, and has signed an agreement to list on the main board of the Singapore Exchange $SGX(S68.SI)$ $Straits Times Index(STI.SI)$ .
Q5. What is unique about this portfolio? How does it meet the growing demand of Singapore investors for global labor and student dormitories?
This is the first REIT in Singapore that specializes in student/labor dormitories, providing investors with new options. I compared the UK Unite Group (student dormitory REIT, listed on the London Stock Exchange, P/B 0.94 times, dividend yield 6.21%, market value 5.7 billion pounds), which can be used as a valuation anchor. Investors should be reminded: This asset type is different from traditional residential properties - most properties are located in non-core areas, with shorter leases, and the quality and luxury are not as good as residential properties. The net asset value (NAV) may be under pressure in the future.
Therefore, when investing, more emphasis should be placed on "yield" rather than asset appreciation, and attention should be paid to improving rents, occupancy rates and operational efficiency rather than simply looking at stock prices.
Centurion plans to inject Episod Macquarie Park, which is under development, into REIT and create premium facilities under the high-end Episode brand. This move can boost NAV in the short term, but in the long term, it still faces downward pressure on NAV due to depreciation, and the management team needs to continue to work hard.
Q6. Back to the first half performance of Singapore Industrial REIT: DPU growth is steady, but under the shadow of tariffs, how great is the risk of rent contraction or tenant weakness?
The impact is limited in the short term. Manufacturing management generally waits and sees because the details of tariffs are not yet determined. Companies will first suspend capital expenditures and cut costs, and closing or relocating factories is the last option. Therefore, large tenants will not vacate their leases in the short term, but there is limited room for rent increases. Small tenants that rely on US orders need to be paid attention to, while logistics and warehousing will be less affected if they serve the local market, and data centers are basically worry-free. Investors need to look closely at asset types and tenant structure.
Q7. In addition to direct impacts, what other reminders are there for investing in Singapore Industrial REITs?
Singapore industrial REITs have a short land lease, so their NAV is under pressure; small REITs that are highly dependent on local FMEs need to pay attention to government support policies.
Q8. What is the first recommendation for investors who are currently considering S-REITs?
First, clarify your investment goals: If you want long-term stable dividends, you can choose REITs with large market capitalization and stable dividends; if you want to take into account capital appreciation, you can buy targets with good fundamentals but suppressed by interest rates in the early stage. Be sure to make choices based on your own risk preferences and goals, and don't buy everything blindly. Today, REITs are no longer risk-free "fixed income" of 6%~8%.
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