Analyst say Fed pause could support S-REIT valuations

The forecast challenges expectations that borrowing costs will climb further.

Singapore real estate investment trusts (S-REITs) could see operating costs stabilise, distributions become more predictable, and their yield advantage over bonds preserved, if US Federal Reserve rates hold as predicted by CGS International.

Its prediction is in contrast to the 1.4x rate hikes implied by swaps markets, according to Bloomberg.

“Under our Fed pause scenario, S-REITs could benefit through reduced cross-currency hedging costs and lower interest expenses on foreign currency debt. If the FFR holds steady, without a steepening of the yield curve at the long end, this would support S-REITs’ valuations through lower risk-free rate assumptions and more attractive yield spreads versus other asset classes,” CGS International said in its sector report.

The report said that S-REITs’ debt maturity profiles remain well staggered and near-term funding cost volatility is relatively contained. A steady interest rate scenario is mildly positive for S-REITs as it lowers funding cost volatility, improves confidence in DPU forecasts and supports yield spread valuations.

However, without a meaningful decline in long-end yields, it is unlikely to drive a broad sector re-rating.

Separately, research houses UOB Kay Hian and DBS Group Research both maintained positive outlooks on the sector, pointing to attractive valuations and resilient fundamentals even as global markets remain unsettled by a more hawkish US Federal Reserve.

The Fed left its benchmark rate unchanged at 3.5% to 3.75% at its June meeting but removed its previous easing bias and offered less forward guidance, reinforcing expectations that rates could stay higher for longer. Despite the hawkish signal, analysts from both houses said much of the risk has already been reflected in S-REIT prices.

The FTSE ST REIT Index fell 6.9% in March before rebounding only marginally by 1.9% in the second quarter of 2026, according to UOB Kay Hian. Since the start of the year, the sector has declined 6.1% while the Straits Times Index rose 11%, DBS said. S-REITs managed a 0.4% gain in June, underperforming the STI's 2.6% monthly rise.

DBS said S-REIT valuations are currently at around 0.9 times price-to-book with a forward yield of 6.2%, representing a spread of 4.2 percentage points. It described this as close to one standard deviation below the sector's long-term average.