Brief Overview
The Singapore REITs sector delivered a solid performance in July with the S-REITs Index gaining 3%, building on June’s 0.4% increase. Results for 1H26 showed impressive strength, with S-REITs under coverage achieving approximately 6% average distribution per unit (DPU) growth year-on-year, excluding Prime US REIT’s exceptional 316% growth. Phillip Securities Research maintains an overweight stance on the sector whilst remaining selective given uncertain interest rate conditions.
Investment Positives
The 1H26 results demonstrate the sector’s underlying resilience, with DPU growth driven by three key factors. Financing costs declined by approximately 20 basis points year-on-year on average, providing material support to distributions. Operating performance remained resilient, supported by higher rents across portfolios. Additionally, completed asset enhancement initiatives (AEIs) and accretive acquisitions contributed meaningfully to growth.
Individual REIT performance highlights the sector’s momentum, with Suntec REIT and OUE REIT recording particularly strong DPU growth of 24.8% and 28.6% respectively, driven by lower financing costs and resilient performance across their Singapore assets. The 3-month SORA has stabilised at around 1.15%, remaining approximately 70 basis points lower year-on-year, continuing to benefit S-REITs with SGD-denominated loans through reduced borrowing costs.
Transaction activity remains robust, with over S$8 billion of acquisitions and more than S$5 billion of divestments year-to-date, including significant deals such as CICT’s S$3.9 billion acquisition of Paragon Mall.
The retail sub-sector shows particularly strong fundamentals, with 1H26 performance characterised by near-full occupancy and rental reversions ranging from mid-single digits to low teens. This performance is underpinned by 17% growth in tenant sales, steady footfall, and limited new supply. The supply outlook remains favourable, with forecast average annual gross new supply of approximately 0.5 million square feet from 2026 to 2029, below historical averages.
Investment Negatives
Despite the positive momentum, analysts highlight concerns about interest rate volatility given the uncertain outlook. The macroeconomic backdrop remains volatile amid the possibility of a Federal Reserve rate hike, which could impact transaction momentum and financing costs.
Outlook
Analysts expect the positive momentum to continue into 2H26, forecasting approximately 4% average DPU growth for covered S-REITs, supported by organic rental growth, accretive acquisitions, and lower financing costs. Transaction activity is expected to continue but at a slower pace given macroeconomic uncertainties. For retail S-REITs specifically, FY26e rental reversions are expected to remain in the mid-to-high-single-digit range.
Recommendation & Target Price
Phillip Securities Research maintains an overweight recommendation on Singapore REITs, favouring those with robust balance sheets, defensive earnings profiles and high proportions of fixed-rate debt. The firm’s top picks are Stoneweg Europe Stapled Trust (BUY, target price €1.89), Elite UK REIT (BUY, target price £0.41), and United Hampshire US REIT (BUY, target price US$0.69).
Frequently Asked Questions
Q: What drove the strong DPU growth in 1H26?
A: Growth was driven by lower financing costs declining approximately 20 basis points year-on-year, resilient operating performance with higher rents, and contributions from completed AEIs and accretive acquisitions.
Q: Which REITs performed best in 1H26?
A: Suntec REIT and OUE REIT recorded the strongest DPU growth at 24.8% and 28.6% respectively, driven by lower financing costs and resilient performance across their Singapore assets.
Q: How significant was transaction activity in the sector?
A: Transaction activity remained robust with over S$8 billion of acquisitions and more than S$5 billion of divestments year-to-date, including CICT's S$3.9 billion acquisition of Paragon Mall.
Q: What is the outlook for retail S-REITs?
A: Retail S-REITs show strong fundamentals with near-full occupancy, 17% growth in tenant sales, and limited new supply. FY26e rental reversions are expected to remain in the mid-to-high-single-digit range.
Q: What are the key risks facing the sector?
A: The main concerns include interest rate volatility given the uncertain outlook and volatile macroeconomic conditions amid the possibility of a Fed rate hike.
Q: What is Phillip Securities Research's investment strategy for S-REITs?
A: The firm maintains overweight on S-REITs but remains selective, favouring REITs with robust balance sheets, defensive earnings profiles, and high proportions of fixed-rate debt for resilience against interest rate volatility.
Q: What is the growth forecast for 2H26?
A: Analysts expect approximately 4% average DPU growth for covered S-REITs in 2H26, supported by organic rental growth, accretive acquisitions, and lower financing costs.
This article has been auto-generated using PhillipGPT. It is based on a report by a Phillip Securities Research analyst.
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