Singapore REITs Poised for Recovery in 2025 as Interest Costs Stabilize

Singapore-listed Real Estate Investment Trusts (S-REITs) continued to grapple with high financing costs, impacting their distribution per unit (DPU) in their latest financial results. However, analysts anticipate DPU growth in FY2025, driven by stabilizing interest costs and strong sectoral performance in logistics and data centers.

S-REITs Struggle with Distributable Income Declines

Of the 34 S-REITs and property trusts that reported financials for Q4 FY2024, 19 recorded lower distributions, and 21 posted declines in DPUs, according to The Business Times.

“Most S-REITs experienced year-on-year DPU declines due to higher financing costs impacting profitability,” noted Liu Miaomiao, senior research analyst at Phillip Securities Research.

Performance across revenue growth was mixed, with an equal split between REITs reporting higher and lower revenue figures.

Singapore Assets Outperform Overseas Markets

Maybank Securities analyst Krishna Guha highlighted that Singapore-based properties outperformed overseas assets in terms of net asset value and operational resilience.

Meanwhile, Macquarie Equity Research analysts reported that rent reversions remained steady in Q4 FY2024, bolstered by strong leasing demand for logistics and data center properties.

Sector Performance: Logistics & Data Centers Leading the Charge

• Logistics S-REITs saw double-digit positive rent reversions, indicating strong demand for warehousing and supply chain infrastructure.
• Keppel DC REIT (AJBU) posted a 39% rent reversion in 2024, driven by colocation contract renewals in Singapore. Analysts expect continued growth in 2025, fueled by strong demand and tight data center supply.

Conversely, the office REIT sector showed signs of weakness, though analysts foresee a rebound in rental rates in FY2025, particularly as IOI Central Boulevard Towers nears full occupancy.

Retail Sector: Tenant Sales Soft but Expected to Rebound

The retail sector showed stable occupancy rates, with positive rent reversions in the mid- to high-teens.

However, Macquarie’s analysts observed a dip in Q4 2024 tenant sales, especially in downtown malls, mirroring a decline in Singapore’s retail spending during the November-December holiday season as consumers traveled overseas.

Despite this, analysts maintain a positive outlook for retail REITs in 2025, expecting tenant sales recovery.

Interest Rates & Debt Management: Cost Pressures Easing

S-REITs have yet to fully benefit from the sharp drop in the Singapore Overnight Rate Average (SORA), which fell from 3.9% in September 2024 to 2.1% in December 2024.

Analysts believe average debt costs for most S-REITs have peaked, and a moderation in borrowing expenses could provide tailwinds in H1 2025.

• Frasers Centrepoint Trust (J69U), Keppel DC REIT (AJBU), and CapitaLand Ascott Trust (HMN) are expected to face minimal impact from rising interest rates.
• Keppel REIT (K71U), Mapletree Industrial Trust (ME8U), and Mapletree Logistics Trust (M44U) may see higher refinancing costs as low-rate debt matures in FY2025.

S-REITs Outlook for 2025: Modest Growth Expected

• Phillip Securities’ Liu forecasts 1% DPU growth in 2025, with broader benefits in 2026.
• Macquarie downgraded Keppel REIT and Frasers Logistics and Commercial Trust (FLCT) to “neutral,” citing higher management fees paid in cash and lower capital distributions.
• Morningstar’s Xavier Lee warned that some REITs may cut DPUs as they eliminate distribution top-ups from divestment gains.

Market Revival Efforts & Future Prospects

S-REITs stand to benefit from the Monetary Authority of Singapore’s (MAS) S$5 billion investment initiative, designed to boost liquidity in Singapore equities.

Despite macroeconomic challenges, analysts stress that the ability of REIT managers to grow distributions over time will be the key driver of price performance in 2025 and beyond.

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