Singapore REITs Outlook 2025: Navigating Challenges Amid Higher Interest Rates and Valuation Support

Singapore REITs Analysis: Detailed Company Insights and Recommendations

Date: 17 February 2025

Broker: OCBC Investment Research

Introduction to Singapore REITs Performance

The Singapore Real Estate Investment Trusts (S-REITs) sector has faced significant challenges over the past year, with a subdued growth outlook and underperformance compared to broader market indices. The FTSE ST All-Share Real Estate Investment Trusts Index (FSTREI) registered total returns of -6.2% in 2024, underperforming both the Straits Times Index (+23.5%) and MSCI Singapore Index (+36.8%). Institutional fund outflows continued into 2025, reflecting weak investor sentiment. Despite these challenges, there are pockets of opportunities for selective investments, particularly in REITs with strong sponsors, robust financials, and Singapore-centric exposure.

Keppel REIT (KREIT)

Keppel REIT delivered mixed results for its 2H24 performance. While its net property income (NPI) rose by 13.6% year-on-year (YoY) to SGD 105.1 million, its distribution per unit (DPU) fell by 3.4% YoY to 2.80 cents. The REIT’s aggregate leverage remained high at 41.2%, with a weighted debt duration of 2.5 years and an interest coverage ratio (ICR) of 2.5x. The average cost of borrowing stood at 3.4%, with 69% of its debt fixed or hedged. A 100bps increase in borrowing costs would negatively impact FY1 and FY2 distributable income (DI) by -3.9% and -3.8%, respectively. Keppel REIT’s DPU growth outlook was revised downward, reflecting cautious sentiment.

Recommendation: In-line performance with a cautious outlook.

OUE Commercial REIT (OUE REIT)

OUE REIT outperformed expectations with a robust 8.7% YoY increase in DPU for 2H24, reaching 1.13 cents. However, net property income declined slightly by 2.3% YoY to SGD 116.9 million. The REIT’s aggregate leverage stood at 39.9%, with a debt duration of 3.0 years and an ICR of 2.2x. Approximately 76% of its debt was fixed or hedged, mitigating interest rate risks. A 100bps increase in borrowing costs would reduce FY1 and FY2 DI by -4.4% and -4.2%, respectively.

Recommendation: Above expectations with a positive outlook.

Suntec REIT (SUN)

Suntec REIT faced challenges, with its DPU declining by 13.9% YoY to 3.15 cents for 2H24. This drop was due to the absence of capital distributions despite firm operational performance. The REIT’s aggregate leverage stood at 42.4%, with a debt duration of 2.8 years and an ICR of 1.9x. Only 58% of its debt was fixed or hedged, leaving it vulnerable to rising borrowing costs. A 100bps increase in borrowing costs would reduce FY1 and FY2 DI by -9.6% and -9.0%, respectively.

Recommendation: In-line performance with a cautious outlook.

CapitaLand Integrated Commercial Trust (CICT)

CICT delivered stable results, with a flat YoY DPU of 5.45 cents for 2H24. Net property income rose by 1.3% YoY to SGD 571.1 million. The REIT’s aggregate leverage was 38.5%, with a debt duration of 3.9 years and an ICR of 3.1x. Approximately 81% of its debt was fixed or hedged. A 100bps increase in borrowing costs would reduce FY1 and FY2 DI by -2.1% each.

Recommendation: In-line performance with stable prospects.

Keppel DC REIT (KDCREIT)

Keppel DC REIT stood out with a stellar 13.2% YoY increase in DPU to 4.90 cents for 2H24. This growth was driven by strong organic performance in Singapore and accretive acquisitions of two high-quality data centers. The REIT’s aggregate leverage was 31.5%, with a debt duration of 3.2 years and an ICR of 5.3x. Approximately 66% of its debt was fixed or hedged. A 100bps increase in borrowing costs would reduce FY1 and FY2 DI by -3.3% and -2.9%, respectively.

Recommendation: Above expectations with strong growth potential.

Parkway Life REIT (PREIT)

Parkway Life REIT maintained a resilient performance, with a slight decline in DPU by 1.3% YoY to 7.38 cents for 2H24. The REIT’s aggregate leverage stood at 34.8%, with a debt duration of 3.0 years and an ICR of 9.8x. Approximately 87% of its debt was fixed or hedged, significantly mitigating interest rate risks. A 100bps increase in borrowing costs would minimally impact FY1 and FY2 DI by -1.2% and -1.0%, respectively.

Recommendation: Slightly below expectations but remains a preferred pick.

Frasers Logistics & Commercial Trust (FLT)

FLT faced challenges with a 4.9% YoY decline in FY1 DPU to 6.47 cents and a further 1.3% decline expected for FY2. The REIT’s aggregate leverage stood at 36.2%, leaving limited debt headroom for growth opportunities. Management’s lack of exciting acquisitions and poor communication added to investor concerns. Additionally, its sponsor plans to sell units received as management fees, potentially pressuring its share price.

Recommendation: Removed from preferred picks due to lackluster performance outlook.

CapitaLand Ascott Trust (CLAS)

CLAS’s 2H24 DPU declined by 6.6% YoY to 3.55 cents. While management has committed to stabilizing distributions through operational performance, upside potential remains limited in the near term. The REIT’s diversified portfolio, including student accommodation in the US and rental housing in Japan, provides defensive characteristics. However, normalizing global hotel performance in 2025 could weigh on its overall outlook.

Recommendation: Removed from preferred picks but remains a resilient long-term option.