S-REITs Poised for Gains as Global Tensions Ease
UOB Kay Hian – April 4, 2025
In a surprising turn of events, Singapore’s Real Estate Investment Trusts (S-REITs) are starting to regain lost ground, presenting an attractive opportunity for investors. After a prolonged period of negative correlation with the S&P 500 Index, S-REITs could be primed for a rebound even as the broader U.S. market experiences a downturn over the next six months.
Defensive Strength in Uncertain Times
S-REITs have demonstrated remarkable resilience, thanks to their stable cash flows and long-term lease structures. Regression analysis reveals a negative correlation of 0.59 between the FTSE ST All-Share REITs Index (FSTREI) and the S&P 500 Index over the past five years. This suggests that S-REITs could potentially register gains even as the S&P 500 falls, making them an attractive defensive play in the current market environment.
Suburban Retail, Healthcare, and Data Centers Lead the Way
The report identifies the most defensive S-REIT sectors as suburban retail (CICT and LREIT), healthcare (PREIT), and data centers (DCREIT, KDCREIT, and MINT). These sectors are relatively less affected by the impact of tariffs, making them attractive investment options in the current market conditions.
CapitaLand Integrated Commercial Trust (CICT SP)
- Positive rental reversion of 8.8% for retail and 11.1% for office in 2024
- Occupancy at ION Orchard improved 2 percentage points to 98% in Q4 2024
- Diversification across retail and office provides resiliency
- Average cost of debt stable at 3.6% in Q4 2024, expected to remain below 4% in 2025
- Target price of S\$2.37 based on Dividend Discount Model (DDM)
Parkway Life REIT (PREIT SP)
- S\$350 million Project Renaissance will transform Mount Elizabeth Hospital into a modern, integrated multi-service hub
- Right of first refusal to acquire the hospital block of Mount Elizabeth Novena Hospital
- Defensive strength supported by healthcare orientation, long WALE of 15.3 years, and low aggregate leverage of 34.8%
- Target price of S\$4.85 based on DDM
Digital Core REIT (DCREIT SP)
- Management expects positive rental reversion to improve to double digits in 2025
- Completed acquisition of 20% interest in a second data center in Osaka, Japan, expected to be 1.8% accretive to pro forma 2024 DPU
- Target price of US\$0.88 based on DDM
Navigating the Changing Landscape
The report highlights that S-REITs with long weighted average lease expiry (WALE) and low gearing are better positioned to weather the current market volatility. Sectors such as suburban retail, healthcare, and data centers are expected to be relatively less affected by the impact of tariffs, making them attractive investment options.
As the global economic landscape continues to evolve, S-REITs appear poised to regain their footing and potentially outperform the broader market. Investors would be wise to closely monitor these defensive plays in the coming months.
