S-REITs gain appeal as borrowing costs and bond yields fall: RHB

RHB named CapitaLand Integrated Commercial Trust, CapitaLand Ascendas REIT, among others as its top picks.

RHB is maintaining its overweight stance on Singapore REITs (S-REITs), citing “benign sector valuations” and a “medium-term risk-reward still in favour.”

In its latest sector update, RHB named CapitaLand Integrated Commercial Trust, CapitaLand Ascendas REIT, Frasers Centrepoint Trust, Keppel REIT, and AIMS APAC REIT its top picks.

The firm noted that recent financial results were “largely in line,” with most REITs showing resilience amidst macroeconomic headwinds. One of the most encouraging signs was a broad-based decline in interest costs, particularly for Singapore-centric REITs.

“Nearly three quarters of the S-REITs saw flat to moderate interest cost declines QoQ,” RHB observed, attributing the shift to a 70-basis-point fall in the 3-month SORA benchmark rate.

This decline in borrowing costs has enhanced the relative attractiveness of S-REITs, especially as yields on alternatives such as T-bills and savings bonds have softened.

“The fall in benchmark rates has also resulted in… rising yield spreads for S-REITs – potentially creating room for fund inflows to the sector if the tariff overhang is removed,” the report stated.

Operationally, the REITs remain stable. RHB reported “no major changes to guidance for operational performance,” with most managers expecting stable occupancy and positive rent reversions.

Whilst the global backdrop remains uncertain, particularly in the US and China, RHB noted that “the direct impact of US tariff policies has been minimal on S-REITs so far.”

Corporate activity is accelerating, with more privatisations and IPOs on the horizon. “Our earlier expectations of possible privatisations have materialised,” the report stated, citing Paragon REIT and Frasers Hospitality Trust.

It added that “there is a likelihood of few other M&A plays such as IREIT Global, First REIT, Sabana Industrial REIT, and Suntec REIT.” Additionally, RHB expects “3–4 S-REIT IPOs in the pipeline” across data centres, student and worker accommodation, industrial, and healthcare sectors.

On the capital deployment front, acquisitions have slowed, totalling just $1.6b YtD, whilst divestments have gained momentum. “S-REITs continue to accelerate their pace of divestments to unlock and realise capital,” often at premiums to book value. The divestment trend is expected to continue into the second half of 2025.

From a valuation perspective, S-REITs are trading at attractive levels. “Yield spreads have widened to c.385bps, the highest since 2022,” RHB noted, supported by falling bond yields and stable cap rates. S-REITs are now priced at “0.85x P/B, below -1SD levels to the long-term mean,” offering potential upside as sentiment improves.