Singapore REITs Navigate Interest Rate Headwinds with Selective Opportunities, Phillip Securities Maintains OVERWEIGHT Stance June 26, 2026

Market Performance and Outlook

Singapore REITs faced headwinds in May 2026, with the S-REITs Index declining 1.6% as markets increasingly priced in potential interest rate hikes, reversing the previous month’s 3.2% gain. Despite this setback, Phillip Securities Research maintains its OVERWEIGHT stance on the sector, while adopting a selective approach given the current interest rate environment.

The performance disparity within the sector was notable. AIMS APAC REIT led gains at 4.6% following strong FY26 results, while Acrophyte Hospitality Trust suffered a significant 20% decline due to severe weather conditions and rising operating costs affecting its 1Q26 performance. Sector-wise, overseas retail emerged as the best-performing sub-sector with a 0.3% gain, whilst overseas commercial lagged with a 3.5% decline as US-office REITs reacted negatively to higher interest rate prospects.

Interest Rate Environment and Growth Expectations

The global monetary policy landscape remains mixed, with the ECB and BOJ raising policy rates by 25 basis points in June, whilst the Fed maintained rates unchanged at 3.50% to 3.75%. However, the Fed’s dot plot indicates potential for one rate hike in 2026, with markets pricing in two rate hikes by year-end.

Despite these concerns, Phillip Securities expects approximately 80% of S-REITs to benefit from stable or lower financing costs, as benchmark interest rates remain lower year-on-year. The 3M SORA has declined over 110 basis points year-on-year to approximately 1.08%, providing tailwinds for Singapore REITs with SGD-denominated debt due for refinancing. This favourable environment, combined with rental growth of 1% to 3% from contractual escalations and positive reversions, should support average DPU growth of approximately 3% year-on-year for covered S-REITs in FY26e.

Investment Strategy and Top Picks

Phillip Securities’ investment preference centres on REITs with robust balance sheets, defensive earnings profiles, and higher proportions of fixed-rate borrowings. The firm particularly favours retail S-REITs, supported by healthy tenant sales and limited new supply, which should underpin mid- to high-single-digit rental reversions in 2026.

The research house’s top picks include Stoneweg Europe Stapled Trust (BUY, target price: €1.89), Elite UK REIT (BUY, target price: £0.41), United Hampshire US REIT (BUY, target price: US$0.69), and Prime US REIT (BUY, target price: US$0.32). Stoneweg Europe Stapled Trust stands out with 87% of debt hedged through late 2027 and FY26e cost of debt to remain below 4% despite recent ECB rate hikes.It is also trading at a 25% discount to NAV, with an attractive 8.6% dividend yield.

Frequently Asked Questions

Q: What was the performance of Singapore REITs in May 2026?

A: The S-REITs Index fell 1.6% in May, reversing the 3.2% gain recorded in April, as markets increasingly priced in the possibility of interest rate hikes.

Q: Which REITs were the best and worst performers during the month?

A: AIMS APAC REIT was the best performer, rising 4.6% following strong FY26 results, whilst Acrophyte Hospitality Trust was the worst performer, declining 20% due to severe weather conditions and rising operating costs.

Q: What is Phillip Securities' overall stance on Singapore REITs?

A: Phillip Securities maintains an OVERWEIGHT stance on S-REITs, although they remain selective given the current interest rate backdrop, preferring REITs with robust balance sheets and defensive earnings profiles.

Q: What DPU growth does Phillip Securities expect for Singapore REITs?

A: The firm expects average DPU growth of approximately 3% year-on-year for S-REITs under their coverage in FY26e, supported by contractual rental escalations, positive reversions, and easing financing costs.

Q: Which sub-sectors performed best and worst in May?

A: Overseas retail was the best-performing sub-sector, gaining 0.3%, whilst overseas commercial was the weakest, falling 3.5%, as US-office REITs reacted negatively to higher interest rate prospects.

Q: What are Phillip Securities' top REIT recommendations?

A: Their top picks are Stoneweg Europe Stapled Trust (BUY, €1.89), Elite UK REIT (BUY, £0.41), United Hampshire US REIT (BUY, US$0.69), and Prime US REIT (BUY, US$0.32).

Q: Why does Phillip Securities favour retail S-REITs?

A: They favour retail S-REITs due to healthy tenant sales and limited new supply, which should underpin mid- to high-single-digit rental reversions in 2026.

Q: How will interest rate changes affect Singapore REITs?

A: Despite potential rate hikes, approximately 80% of S-REITs are expected to benefit from stable or lower financing costs, as benchmark rates remain lower year-on-year, with 3M SORA downby more than 110 basis points

This article has been auto-generated using PhillipGPT. It is based on a report by a Phillip Securities Research analyst.

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About the author

Darren Chan

Darren has over seven years of experience across both the buy-side and sell-side. During his tenure as a fund manager, he managed multiple funds and mandates, including dividend income, growth, customised, Singapore-focused, and regionally focused strategies. He holds a First-Class Honours degree in Banking and Finance from the University of London.

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