To The Moon

(1) Review of 2025 Singapore REITs Performance (The Wrap-Up)

Key Takeaway: A Strong Rebound driven by rate stabilization and the start of SORA decline.

• Overall Performance: 2025 is shaping up to be the best year for S-REITs since 2019, with total returns (price gain + dividend) projected to be around 12-15% YTD (as of Dec 2025). This marks a significant rebound from the challenging high-rate environment of 2023/2024.

• Driver: The primary catalyst has been the stabilisation and decline of borrowing costs. The 3-month Compounded SORA in Singapore has trended down (e.g., from a peak near 4.5% to around $1.28% by late 2025), significantly easing the refinancing burden.

• Fundamental Stability: Most S-REITs demonstrated stable operating performance in 2025, with resilient occupancy rates and positive rental reversions across Retail, Industrial, and Office sectors.

• Valuation: Despite the price recovery, the sector is generally still trading at an attractive valuation, with the average P/NAV (Price-to-Net Asset Value) around 0.85 (simple average) and a trailing 12-month yield around 5.5%.

(2) Projected US and Singapore Interest Rates

Key Takeaway: The "Lower-for-Longer" narrative is shifting to a rate-cutting cycle, providing a strong tailwind for 2026.

(3) How the Interest Rate Shift Will Affect REIT DPU and Valuation

Key Takeaway: Lower rates are the most significant positive catalyst for DPU and valuation compression in 2026.

• Direct Impact on DPU (Distribution Per Unit):

  • Lower SORA/cost of debt directly reduces interest expense for REITs with floating-rate debt or upcoming refinancing. This saving is immediately accretive to Distributable Income and, thus, DPU.

  • Analysts have noted that even a 25-50 basis point decline in debt cost can visibly improve DPU for REITs with shorter debt maturity profiles.

  • Unlikely for all the REITs to benefit fully from the interest rate cut as majority of the REITs have extend the debt maturity profile with higher fixed rate previously. Only REITs with shorter WADM (Weighted Debt Maturity Profile) and low percentage of fixed rate will benefit the most.

• Indirect Impact on Valuation (NAV):

  • Yield Compression: As bond yields fall, the required yield on S-REITs becomes less competitive. Investors shift from lower-risk bonds to REITs for yield, driving up REIT prices. This narrows the Yield Spread (REIT Yield minus Government Bond Yield).

  • Capitalisation Rates: Lower borrowing costs are expected to lead to a compression of cap rates in the private real estate market, driving up the valuation of the physical properties (Net Asset Value - NAV), especially for prime assets. This will support the REIT's share price and P/NAV ratio.

• Historical Parallel: Historically, REITs have often performed strongly in the 12 months following the commencement of an easing cycle, as lower rates enhance their appeal as an income-generating asset.

(4) Key Financial Ratios for REIT Selection in 2026

Given the shift in the interest rate cycle, investors should focus on ratios that signal stability and capacity for growth.

REITs ranked by the highest WALE (Source: REITsavvy)

REITs ranked by the highest Interest Coverage Ratio (Source: REITsavvy)

Expect Improvement in Gearing (decreased) and ICR (increase) for S-REITs in 2026

(5) Sector Outlook

Key Takeaway: Industrial (Data Centre/Logistics) and Suburban Retail are positioned for continued strength, while Hospitality sees growth from tourism.

(6) Wrap Up: Summary of Outlook 2026

• The Pivot Year: 2026 is expected to be a pivotal recovery year for S-REITs, transitioning from a survival phase to a growth phase, primarily driven by a more accommodative lower interest rate environment.

• DPU Inflection: We expect DPU growth to inflect upwards for the sector as lower interest expenses translate directly to distributable income.

• The New Mantra: Investors should focus on Quality, Balance Sheet Strength, and Sector Exposure to secular growth trends (Data Centres, Logistics, Suburban Retail).

• Actionable Strategy: S-REITs are poised to be an attractive income play, with a potential to deliver both stable yield and capital appreciation as market valuations converge with private asset values.