- Easing cost pressures and improving fundamentals have led to S-REITs rallying c.12.5% YTD
- Despite the c.0.9x P/B multiples, valuations remain undemanding
- The market may see some near-term volatility following “hawkish” views from the Fed
- Quality S-REITs with strong balance sheets and visible growth drivers will stand out
- We reiterate preference for alpha picks, and interest-rate sensitive names
Related Insights
Valuations of S-REITs remain undemanding despite recent rally. S-REITs have risen c.12.5% YTD, supported by easing cost pressures and improving fundamentals. However, we believe valuations remain reasonable at around 0.9x price-to-book (P/B) and forward FY26 dividend yields of c.5.7%. Many S-REITs saw borrowing costs peak earlier this year and are now starting to realise savings from lower interest rates, though more meaningful cost reductions are expected to materialise from this quarter into FY26.
Mixed signals from the recent 25 bps rate cut by the Fed. Fed delivered its second benchmark rate cut of the year on 29 Oct, which is likely to further alleviate borrowing costs for S-REITs. However, the Fed signalled a “hawkish” stance, noting that a potential third rate cut in December will depend on upcoming labour market and economic data. While the Fed’s outlook is largely unchanged, there remains scope for two additional cuts in this cycle, keeping prospects for further easing alive. This policy stance suggests continued support even as inflation moderates, with US Treasury yields recently edging above 4.0%. Despite the near-term volatility in stock prices, we remain buyers on weakness.
Interest rate savings to drive DPU growth. With benchmark rates dipping, and especially Singapore’s SORA rate declining c.1.15% to almost pre-rate hike levels in 2022, S-REITs will likely enjoy a more meaningful interest rate savings to drive DPU growth higher. Based on current SORA rates, we expect refinancing of loans expiring in 2026-2027, to see up to 200 bps in savings, assuming a 3-year refinancing roll. Overall, we see up to a 40 bps increase in yield for the sector overall in 2026, driving headline yields back towards the c.6.0% level, or a spread of more than 4%, levels that investors were happy to re-enter.
Reiterate preference for alpha picks and interest-rate sensitive names. In line with earlier notes (“Singapore REITs: REIT rally gather steam as rate cuts sink in” and “Singapore REITs: Time to go ‘all-in’”), we expect sector enthusiasm to improve following strong 3Q25 results and lower SORA rates, highlighting a shift from interest rates as headwinds to tailwinds. Investors are increasingly focusing on REITs where DPU growth outpaces NPI, and this momentum is expected to accelerate in the second half of 2025 into 2026. We maintain our alpha picks, and suggest that mid-cap, interest-rate sensitive stocks, which may benefit from a higher proportion of floating rate debt.
Figure 1: Key interest rates (SG, HK, AU, EU) (%)
Source: Companies, DBS (as at Oct 2025)
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