The REIT sector has been in the doldrums since the US Federal Reserve (“Fed”) hiked interest rates at the sharpest pace in history.
With interest rates hovering at multi-year highs, investors are shunning REITs as this asset class copes with higher finance costs that are eating into distributable income.
Can Singapore REITs (S-REITs) still be a viable asset class for income-seeking investors?
Let’s dig deeper to determine if the distributions are still flowing, and what can be done to lift the animal spirits within the sector.
“Higher for longer”
Back in June, the US released a jobs market report that proved the economy was more resilient than anticipated.
The US economy added 147,000 nonfarm payrolls last month, much more than the 106,000 expected by economists.
Instead of going higher to 4.3%, the unemployment rate fell to 4.1%.
Because of this strong job report, markets are now pricing in just a 5% chance of the US central bank lowering rates.
Thus far, the data has yet to signal a significant, prolonged slowdown in the labour market, which implies that the Fed has little incentive to slash interest rates.
What’s more, Trump’s tariffs are threatening to re-ignite inflation across the globe as supply chains digest higher costs.
Companies may be forced to price their products and services higher to offset the impact of these punishing tariffs.
Should inflation stay elevated, interest rates will need to be kept “higher for longer”.
Pessimism rules
Because of the above, it seems that pessimism may be here to stay for the REIT sector, at least for the time being.
There’s a silver lining, though.
Many REITs are still dishing out distributions to unitholders even though their unit prices may stay depressed.
For income investors, it’s more important to focus on whether you can continue to receive your dividends than whether the REIT’s unit price performs well.
On this aspect, REITs have done an admirable job.
The requirement for them to pay out at least 90% of their earnings as distributions means that income investors can still enjoy regular payouts.
Moreover, there are also several REITs that managed to thrive despite these tough conditions.
Quality is your friend
When the going gets tough, it’s time to turn to quality.
Buying quality REITs ensures that you can sail through tough times to emerge relatively unscathed.
Quality in this case refers to the presence of several attributes – a strong sponsor, high-quality properties that see strong demand, and a REIT manager that is adept at capital recycling to maximise value and ensure the portfolio stays relevant.
One example is Parkway Life REIT (SGX: C2PU).
The healthcare REIT has IHH Healthcare Berhad (SGX: Q0F) as a sponsor, and its core distribution per unit (DPU) has risen uninterrupted since its IPO in 2007.
The first quarter of 2025 (1Q 2025) saw continued growth in the REIT’s DPU, up 1.3% year on year to S$0.0384.
Another quality REIT is CapitaLand Ascendas REIT (SGX: A17U), or CLAR, one of Singapore’s oldest industrial REITs.
CLAR’s sponsor is none other than blue-chip real estate investment manager CapitaLand Investment Limited (SGX: 9CI).
For 2024, gross revenue rose 2.9% year on year while net property income (NPI) increased by 2.6% year on year.
The REIT’s DPU managed to inch up 0.3% year on year to S$0.15205.
Last year also saw the sale and leaseback acquisition of a logistics centre in the US for S$153.4 million.
For 1Q 2025, the industrial REIT still had six ongoing projects worth nearly S$500 million for the redevelopment and refurbishment of properties to improve returns.
This active approach ensures that older properties get divested while new ones are acquired, helping to refresh the portfolio and boost its yield.
Yet another REIT with a strong sponsor and healthy prospects is Keppel DC REIT (SGX: AJBU).
The data centre REIT reported a 22.6% year-on-year jump in gross revenue for 1Q 2025 and a 24.1% year-on-year increase in NPI.
DPU jumped 14.2% year on year to S$0.02503 as acquisitions and rental escalation clauses contributed to better performance.
With data being the new oil, Keppel DC REIT should enjoy continued strong demand for its properties, allowing the REIT to report positive rental reversions.
Get Smart: Be selective on the REITs you choose
After all has been said and done, it boils down to selecting the right REITs to own for the long term.
If you choose quality REITs, you can weather any type of storm without worrying too much.
Look for the attributes stated above as a starting point, and you should continue to enjoy the reliable distributions that REITs dish out.
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Disclosure: Royston Yang owns shares of Keppel DC REIT.
