[SINGAPORE] The tide could soon turn for underperforming industrial Singapore-listed real estate investment trusts (S-Reits) as the sector looks set for a comeback, with attractive opportunities for re-entry, according to a DBS Group Research report on Thursday (Jun 12).
Industrial S-Reits have declined by 5 per cent on average in share price since the beginning of the year.
But the research house said that progress in recent trade negotiations between Washington and Beijing has led to an improved near-term outlook for such S-reits, which have been affected by trade uncertainties, as well as interest rate and currency fluctuations.
This opens an “attractive opportunity not to be missed” for the sector, which has an average DPU yield of 5.8 per cent to 9.8 per cent, more than 1 per cent higher than retail S-Reits, it added.
DBS also expects borrowing costs for large-cap industrial S-Reits to decrease amid falling interest rates, which have declined by 1.4 to 1.7 per cent year-to-date compared with 2024. Furthermore, the strengthening of the yen, euro and pound against the Singapore dollar could ease FX-related pressures on earnings for such S-Reits with exposure to these markets.
Altogether, this will better enable large-cap industrial S-Reits to capitalise on acquisition opportunities to achieve further growth, it added.
BT in your inbox
Start and end each day with the latest news stories and analyses delivered straight to your inbox.
“Industrial and retail SREITs, given their stable income profiles, are seen as defensive plays,” said DBS.
But in recent years, industrial S-Reits have been especially affected by high interest rates and currency volatility. From FY2021 to 2024, DPUs for industrial S-Reits have suffered an average drop of 3.7 per cent, compared with 0.1 to 1.5 per cent growth for Singapore-focused retail Reits.
For FY2025-2027, however, the research house projects industrial and retail S-Reits to experience growth of 0.3 to 1 per cent and 1.2 per cent, respectively, driven by positive reversions from growing rental, contribution from acquisition and lower interest costs.
Top picks
Capitaland Ascendas Reit, Mapletree Logistics Trust and ESR Reit are DBS’ top picks for potential “alpha opportunities”.
These stocks have been supported by attractive valuations, with implied asset yields of 6 per cent (above book cap rates) at a five-year high, with further potential upside earnings on the back of declining interest rates.
Amid trade uncertainties caused by the US tariffs, DBS’ sector preferences remained unchanged. It favours the retail, industrial, office and hotel sectors, in that order, with a focus on defensive names.
Retail S-Reits, on the other hand, have been resilient and stable in recent months, compared with the industrial S-Reit sector, said the research house.
It does not anticipate any immediate effects on the retail S-Reit sector despite possible prolonged tariff conflict fuelling inflation and further uncertainty, and attributes the resilience of the sector to record-high occupancy rates.
