RHB expects S-Reit demand to rise, Singapore Government Securities yield to moderate further

Singapore Reit (S-Reit) demand is expected to rise, said RHB Bank analyst Shekhar Jaiswal on Friday (Aug 29).

A benign inflation backdrop, falling Singapore Overnight Rate Average (Sora) and 10-year yields, as well as an expectation of two US Federal Funds Rate cuts, were cited as the key factors behind the projected demand lift.

Demand for sustainable high-dividend equities is also expected to increase, said Jaiswal.

He added that the drop in 10-year Singapore Government Securities (SGS) yield from 2.86 per cent to 1.81 per cent is expected to moderate further to 1.68 per cent by the end of the year.

S-Reits and high-yield equities to benefit

RHB is positive on industrial Reits, owing to their defensive cash flows, and it believes office Reits are undervalued.

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“Lower interest-rate declines should continue to trim financing costs” and support a higher distribution per unit, said Jaiswal.

This comes as the Sora declined from 3.02 per cent to 1.61 per cent, with RHB expecting it to settle at 1.29 come the end of 2025. The lower SGS yield should also increase demand for S-Reits.

Both the Sora and SGS yield declines, as well as clearer payout visibility, should also drive a “re-rating of Singapore equities with sustainable high dividends”, said Jaiswal.

The analyst report stated that RHB was “overweight” on industrial, office and overseas Reits and “neutral” on hospitality and retail Reits.

CapitaLand Ascendas Reit (Clar), Aims Apac Reit and Keppel Reit were listed as preferred picks in the industrial and office sectors, with target prices of S$3.20, S$1.52 and S$1.05, respectively. Yields were expected to be 5.7, 7.3 and 5.5 per cent.

His picks were in conjunction with the forecast that Singapore’s gross domestic product growth for 2025 will be around 2 per cent. Jaiswal added that there is potential for it to reach 3 per cent due to improving tariff clarity, firmer risk appetite and resilient growth year to date. On the other hand, US-China tariff outcomes, US trade policy uncertainties and a likely slowdown in second-half exports could temper growth.

Units of Clar, Aims Apac Reit and Keppel Reit ended Thursday at S$2.70, S$1.35 and S$0.975, respectively, before the report was published.