DBS cuts S-REIT target prices by 9.6% amidst higher interest rates

The bank raised cost-of-capital assumptions by 30 to 50 basis points.

Target prices for Singapore REITs have been cut by an average of 9.6% amidst higher interest rates, according to a DBS report.

The bank raised its weighted average cost of capital assumptions by 30 to 50 basis points (bp), whilst increasing its long-term cost of debt assumption by about 50bp.

“Higher rates warrant a valuation reset, but fundamentals remain intact,” DBS said.

The revised target prices imply a weighted average target yield of about 5.6%, up from 5.1% previously. The implied price-to-net asset value ratio fell to about 1.1 times from 1.2 times.

The bank said the lower valuations reflect higher required returns rather than weaker earnings.

Meanwhile, rental reversions remain positive across most subsectors, whilst occupancy levels are generally healthy.

DBS maintained its forecast for a 3% compound annual growth rate in distributions per unit from FY26 to FY28.

Separately, property counters have attracted renewed institutional interest in the third quarter.

According to SGX, property companies and REITs accounted for six of nine Singapore-listed counters that reversed net institutional outflows in the first half into net inflows in Q3.

These comprised City Developments, Centurion, Hiap Hoe, Ho Bee Land, Elite UK REIT, and Keppel DC REIT.

Amongst individual trusts, DBS cut its target price for Far East Hospitality Trust by 23% to $0.58 and CDL Hospitality Trusts by 14% to $0.82.

It also lowered target prices for Lendlease Global Commercial REIT by 13% to $0.65, Mapletree Logistics Trust by 13% to $1.35, and CapitaLand Ascott Trust by 13% to $1.00.

Meanwhile, target prices for Keppel Pacific Oak US REIT and Prime US REIT were reduced by 24% to $0.38 (US$0.30) and $0.32 (US$0.25), respectively.

DBS said about 75% of sector debt is fixed or hedged, whilst only about 20% of total borrowings mature in the second half of 2026 through 2027.

“Unlike 2022–24, we see less risk of a broad-based refinancing shock,” it added.

$1 = US$0.78

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