S-REITs hold DPU flat as market prices in rate-cut optimism: analyst

CGS International has reiterated its Overweight rating on the sector.

Singapore-listed real estate investment trusts (S-REITs) are expected to report largely flat distribution per unit (DPU) growth YoY this earnings season, as the market prices in optimism over potential U.S. interest rate cuts, according to CGS International.

The sector has already climbed 3% since June 23, reflecting investor bets that declining funding costs will boost returns in the coming quarters.

Whilst some REITs are set to benefit from organic and inorganic rental uplifts and lower interest costs, others face drags from capital top-up reductions, divestments, and vacancies.

Industrial REITs like Keppel DC REIT (KDCREIT) and CapitaLand Ascendas REIT (CLAR) are expected to post stronger numbers due to resilient occupancy and rental reversions. KDCREIT, in particular, saw a 9% YoY DPU rise supported by new data center contributions and a gearing level of 30.2%.

On the other hand, REITs such as ESR-LOGOS REIT (EREIT), Mapletree Logistics Trust (MLT), and Far East Hospitality Trust (FEHT) may post weaker results due to asset exits, refinancing costs, or slow first-quarter performance. Hospitality trusts in general continue to grapple with softer 1Q results despite improved tourist arrivals in April and May.

Analysts highlighted two key watchpoints this reporting season: updated average debt cost guidance, which could set the tone for future DPU growth, and potential tariff-related impacts on industrial demand. The downward trend in Singapore’s interest rates, particularly the Singapore Overnight Rate Average (SORA), is seen as a key tailwind for many S-REITs with local debt exposure.

CGS International has reiterated its Overweight rating on the sector. S-REITs currently trade at an average 5.75% forecast dividend yield and 0.88x price-to-book value.

The brokerage favors KDCREIT and CLAR for their operational strength and balance sheet flexibility, noting that CLAR’s recent $700 million acquisition is DPU-accretive and positioned for upside through lease expiries.

Despite short-term earnings volatility, analysts believe the full benefit of easing interest rates has yet to be reflected in current valuations—supporting the case for continued exposure to high-quality REITs.