Are cautious investors missing out on quality S-REIT stocks?

Valuations are below historical means, and lower interest rates is a plus for S-REITs.

Investors may shed some of their cautiousness on Singapore REIT (S-REIT) stocks or miss out on good prices— especially as returns are likely to converge with Singapore banks’ performance.

Many investors continue to hold a constructive view on Singapore banking stocks whilst adopting a wait-and-see approach to rebalance exposures on S-REITs, said DBS Group Research, citing discussions with investors.

But this cautious approach could also mean missing out on getting their hands on quality S-REITs at good prices.

Valuations are currently below historical means, whilst changes in the market meant possible avenues to surprise on upsides.

“Lower and more stable interest rates in FY25-26 compared to a year ago are projected to cause a convergence in total returns of
both sectors,” said DBS Group Research.

“This undermines the rationale for continuing a net underweight position in S-REITs, in our opinion. In fact, further interest rate declines could even boost our S-REIT estimates, which we have not priced in,” the analysts said.

Upcoming S-REIT returns may show resilient returns, with upside for selected names. DBS Group Research’s picks are: FCT, MINT, MLT, KREIT, CICT, and PLife REIT.

Amongst Singapore banks, meanwhile, the analysts prefer UOB.

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