Money and Me: S-REITs after the sell-off – bargains or yield traps?

Here are broadcast-ready spoken drafts tailored for a live interview on MoneyFM 89.3. They are structured with clear, punchy, conversational phrasing that transitions seamlessly on air while maintaining institutional rigor.

Section 1: Why Have S-REIT Prices Fallen?

1. What drove September’s sell-off, and how much of it was justified by the REITs’ performance?

“What we saw in September was essentially a macro sentiment sell-off rather than an operational crisis.

The primary catalyst was a sudden spike in long-term bond yields. The Singapore 10-year government bond yield jumped roughly 23 basis points to around 2.58%, alongside rising US Treasury yields. Because REITs are priced relative to risk-free benchmark yields, higher bond yields compress the yield spread—forcing unit prices downward. The FTSE ST REIT Index dipped over 5.7% as a result.

Now, is that sell-off justified? In our view, it’s overdone.

If you look under the hood, key operating fundamentals across major S-REITs remain sound. Occupancies are healthy, rental reversions stay positive, and asset valuations have held firm. The market priced in macro rate anxiety rather than operational deterioration.”

2. UOB Kay Hian points to low domestic borrowing costs. Why are concerns about US interest rates still weighing on S-REITs?

“That comes down to two main drivers: global capital flows and overseas debt exposure.

First, institutional global capital looks at S-REITs relative to US Treasury yields. If a risk-free 10-year US Treasury offers attractive returns, global fund managers demand a wider yield spread to hold Singapore REITs, which drags down unit prices regardless of local fundamentals.

Second, while domestic borrowing costs—like the 3-month compounded SORA—have moderated to the 1.1%–1.2% range, many larger S-REITs hold overseas properties funded by US Dollar or Euro debt. Higher US interest rates keep refinancing costs elevated on those foreign tranches. So while local Singapore debt stays cheap, US rate sentiment still sets the international pricing floor.”

3. Which property sectors look stronger today, and where are you seeing signs of weaker demand?

“We see a clear divergence across sectors:

• The Clear Outperformers:

Data Centres and Industrial / Logistics. Demand driven by AI infrastructure, cloud adoption, and supply chain regionalization remains structural and resilient. Singapore Retail also remains solid, supported by low unemployment and tourist recovery.

• Sectors Facing Headwinds:

Commercial Office and Overseas Properties. Office assets face headwinds from flexible work arrangements and shadow space. Overseas assets—particularly US office trusts or European logistics properties—are feeling pressure from higher local interest rates, currency weakness, and slower tenant absorption.

The key today is staying close to high-quality Singapore-centric assets.”

Section 2: Do Higher Yields Make Them Worth Buying?

4. What should investors check first to judge whether a REIT can maintain its payout?

“High headline yields can easily be a dividend trap if Distribution Per Unit (DPU) isn’t sustainable. Before buying, investors should check three crucial metrics:

1. Interest Coverage Ratio (ICR):

Look for ICR well above 3x. A healthy buffer ensures rising debt costs won’t immediately eat away at cash distributions.

2. Debt Maturity Profile & Hedging:

Check how much debt is expiring over the next 12–18 months and whether 70% to 80%+ of their debt is locked into fixed rates.

3. Aggregate Leverage:

Ensure gearing sits comfortably below 40% to 42%. That gives the manager head-room without needing emergency, dilution-heavy rights issues.”

5. CapitaLand Ascendas REIT’s H1 income available for distribution rose 8.6%, but its payout per unit barely increased. What explains that gap?

“This is a classic example of unit dilution vs. total earnings growth.

While total distributable income grew by 8.6% thanks to strong operational execution and new acquisitions, the total number of units on issue also expanded. That unit expansion happened through private placements and units issued for management fees.

When your profit pie grows by 8.6%, but you slice that pie among 8% more units, the slice per unit—or DPU—remains virtually flat. It highlights why investors must always look at per-unit metrics, not just aggregate income figures.”

6. Mapletree Industrial Trust’s latest quarterly payout fell 4.9% year-on-year. What would you need to see before considering it for income?

“MIT is dealing with two specific headwinds: higher borrowing costs and re-tenanting drag at some of its US data centres.

Before turning constructive on MIT for income, I would look for three signals:

1. Stabilization of US Data Centre Occupancy:

Backfilling vacant space or re-leasing at positive rental reversions.

2. Refinancing Peak Pass-Through:

Confirmation that their weighted average cost of debt has stabilized.

3. Accretive Capital Recycling:

Selling older, low-yielding Singapore general industrial assets to fund higher-yielding data center acquisitions or lower debt.

Once DPU decline bottoms out and stabilizes, MIT’s high-quality portfolio makes it a strong candidate for long-term income.”

7. Keppel REIT’s payout includes temporary anniversary payments ending after H1 2027. How should investors assess the income they can expect beyond that?

“Investors need to strip out those temporary top-ups to calculate the core organic yield.

Keppel REIT’s 50th-anniversary distributions contribute a fixed amount each quarter until H1 2027. To assess true underlying performance:

• Deduct that anniversary payout from the current DPU to find the base operational DPU.

• Check whether organic rental growth—from assets like Ocean Financial Centre or Marina Bay Financial Centre—and income from recent acquisitions (like 255 George Street in Sydney) can bridge that gap by 2027.

If organic rent growth can replace that top-up over the next two years, the yield is sustainable. If not, investors should price the stock based purely on its base core distribution.”

8. Of these three, which looks most attractive to you now, and what is the main risk investors should weigh?

“Of the three, CapitaLand Ascendas REIT (CLAR) looks the most attractive today.

CLAR offers a highly diversified, blue-chip portfolio spanning tech parks, logistics, and data centers across Singapore, the US, Europe, and Australia. It benefits from an exceptional sponsor, strong credit rating, and healthy balance sheet.

• The Main Risk:Its overseas exposure. Foreign exchange fluctuations and higher refinancing costs on European and US properties remain the main drag on DPU growth. But for stability, scale, and long-term total return, CLAR leads the pack.”

Section 3: Could Mergers Improve Returns?

9. What problems could a merger solve for a smaller REIT?

“Scale is everything in the REIT market today. Merging solves three major problems for smaller REITs:

1. High Cost of Debt:

Smaller trusts pay wider credit spreads. Merging into a larger entity improves credit ratings and lowers borrowing costs.

2. Poor Stock Liquidity:

Small-cap REITs suffer from low trading volume, keeping institutional investors away. Larger market caps drive inclusion into major indices (like the FTSE EPRA Nareit Index), driving passive fund inflows.

3. Lack of Growth Runway:

Small REITs near their leverage limits can’t acquire new assets accretively. A larger balance sheet unlocks bigger, transformational deals.”

10. If a merger is proposed, what should investors check to see whether they would receive a fair deal?

“Unitholders should evaluate three critical deal terms:

• NAV Premium/Discount:

Is the acquisition offer at or above Net Asset Value (NAV), or is one side being absorbed at a steep discount?

• DPU Accretion:

Is the merger immediately DPU-accretive to existing unitholders, or does it dilute short-term returns for vague ‘future synergies’?

• Exchange Ratio & Cash Portion:

If it’s an all-unit swap, examine whether the relative valuations fair reflect both portfolios’ asset quality.”*

11. Could combining two struggling REITs leave investors with a bigger trust but the same problems?

“Absolutely—we call that ‘putting two bad apples in one basket.’

If you merge two sub-scale REITs that both suffer from weak assets, high leverage, or poor geographic locations, scale alone won’t fix the underlying asset quality. You end up with a larger entity that still faces structural vacancy and debt refinancing headwinds.

A successful merger requires complementary portfolios and a strong sponsor capable of injecting fresh, quality pipeline assets and lowering borrowing costs.”

12. For someone already holding S-REITs at a loss, how should they decide whether to hold, buy more or sell?

“I suggest applying a simple 3-Step Audit to your holdings:

1. Sell / Cut Losses:

If the REIT has weak sponsors, high debt (>45% gearing), low interest coverage (<2.5x), and assets in structural decline (e.g., pure US commercial office). Don’t hold purely hoping for a rebound.

2. Hold:

If the REIT owns quality assets with positive rental reversions, but is temporarily suppressed by high interest rates. Let the distribution yield pay you to wait.

3. Buy More (Dollar-Cost Average):

If it’s a blue-chip REIT (like CICT, CLAR, or Keppel DC REIT) with a strong sponsor, gearing below 40%, and dividend yields above 6%. Lowering your average cost here positions you well for when rate cuts materialize.

Focus on asset quality and balance sheet strength over short-term price volatility.”

Kenny Loh is a distinguished Wealth Advisory Director with a specialization in holistic investment planning and estate management. He excels in assisting clients to grow their investment capital and establish passive income streams for retirement. Kenny also facilitates tax-efficient portfolio transfers to beneficiaries, ensuring tax-efficient capital appreciation through risk mitigation approaches and optimized wealth transfer through strategic asset structuring.

In addition to his advisory role, Kenny is an esteemed SGX Academy trainer specializing in S-REIT investing and regularly shares his insights on MoneyFM 89.3. He holds the titles of Certified Estate & Legacy Planning Consultant and CERTIFIED FINANCIAL PLANNER (CFP).

With over a decade of experience in holistic estate planning, Kenny employs a unique “3-in-1 Will, LPA, and Standby Trust” solution to address clients’ social considerations, legal obligations, emotional needs, and family harmony. He holds double master’s degrees in Business Administration and Electrical Engineering, and is an Associate Estate Planning Practitioner (AEPP), a designation jointly awarded by The Society of Will Writers & Estate Planning Practitioners (SWWEPP) of the United Kingdom and Estate Planning Practitioner Limited (EPPL), the accreditation body for Asia.

You can join his Telegram channel #REITirement – SREIT Singapore REIT Market Update and Retirement related news. https://t.me/REITirement

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