S-Reits set for best year since 2019 with 14.7% total returns in the year to date

[SINGAPORE] Singapore-listed real estate investment trusts, or S-Reits, are set to deliver their best yearly performance in six years, as prices rebound amid stable operating performances and a more supportive interest rate environment.

As at Friday (Dec 5), the iEdge S-Reit Index had risen 9.3 per cent in the year to date, with dividend distributions taking total returns up to 14.7 per cent. This marked the strongest annual performance since 2019, when the index gained 19.6 per cent and logged total returns of 27.5 per cent.

Of the 33 iEdge S-Reit Index constituents, 29 posted positive total returns in the year to date. The top 10 performers delivered total returns above 20 per cent. 

The outperformers include diversified S-Reits such as CapitaLand Integrated Commercial Trust , OUE Reit , Mapletree Pan Asia Commercial Trust (MPACT) and Suntec Reit . 

For the most part, S-Reits reported stable operating performances in their latest third-quarter results, with counters across various sub-segments such as retail, industrial and office space showing stable occupancy and positive rental reversions.

UOB Kay Hian analyst Jonathan Koh said in a Nov 27 report that most of the S-Reits covered by the brokerage delivered Q3 results that met or exceeded expectations. The sector also benefited from improvements in interest rates.

The US Federal Reserve reduced interest rates twice this year, by 25 basis points (bps) each in September and October, building on its three cuts in 2024. Current expectations are for the Fed to reduce rates once more this month, with the CME FedWatch tool indicating an 87 per cent probability of a 25 bp cut at the Dec 10 meeting.

In Singapore, borrowing costs have already decreased this year, with the three-month compounded Singapore Overnight Rate Average falling from 3.02 per cent on Jan 2 to 1.25 per cent on Dec 4. S-Reits also reported lower costs of debt in their latest results. 

For example, MPACT’s finance expenses improved 16.4 per cent year on year in Q2 due to favourable interest rate conditions and proactive debt reduction. Similarly, OUE Reit reported a 19.7 per cent decline in finance costs to S$21.6 million in Q3 amid declining interest rates and active capital management. 

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Gerald Wong, founder of investment advisory platform Beansprout, noted in a report last month that the latest results continue to demonstrate how falling interest rates visibly improved S-Reits’ performance. 

“A number of S-Reits reported lower average debt costs and showed how a 25 bp or 50 bp decline in rates could translate into higher distributable income,” he said.

“The ability to issue long-dated debt at tighter spreads signalled that capital market conditions have improved, supporting stronger earnings sustainability heading into 2026.”

He also pointed out that S-Reits have been more active in acquisitions and divestments in recent months.

“Within the sector, we favour Reits that can sustain and grow distributions through active portfolio management, such as asset enhancements, selective acquisitions or rental reversion opportunities,” he said. Beansprout’s picks among the mid-cap Reits include Elite UK Reit , CapitaLand India Trust and Digital Core Reit .

In a commentary last month, Fitch Ratings said it expected rated S-Reits’ portfolio rejuvenation efforts to gain momentum as borrowing costs moderate. It noted that their spending on asset enhancement initiatives was around S$350 million in the first half of 2025. For the year, Fitch expects their capex to rise by 20 to 25 per cent as they invest in raising asset quality.

The analysts said: “We expect capitalisation rates to compress amid rising demand – especially for prime logistics, retail and office assets in core markets – driving valuations higher.”

They also anticipate a further fall in Reits’ borrowing costs, in line with expectations for US policy rate reductions in 2026.

While S-Reits’ unit prices have rebounded this year, some analysts noted that their performance lagged that of the broader Singapore market – indices such as the Straits Times Index delivered total returns exceeding 25 per cent over the same period. 

UOB Kay Hian’s Koh said: “S-Reits have largely lagged recovery in the broader market, despite support from lower domestic interest rates. Thus, they are likely to gradually catch up with the broader market, but are unlikely to lead the decline during a correction.”

He maintained an “overweight” call on the sector, noting that S-Reits have stable cash flows due to long lease tenures, providing income stability despite uncertainty in the macro environment. SGX RESEARCH

The writer is a research analyst at SGX. For more research and information on Singapore’s Reit sector, visit sgx.com/research-education/sectors for the S-Reits & Property Trusts Chartbook.