Money and Me: S-REITs: Buying Opportunity, Value Trap or Time to Move On?

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Best of Live Well with Michelle.

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Michelle Martin (0:20)

This is Money And Me, I'm Michelle Martin. At 7 minutes past 10, we are talking sREITs today because after several years of higher borrowing costs and pressuring on valuations and uneven distribution growth, the REIT sector here in Singapore is still trying to find its footing. We know that sREITs have already raised about 4.5 billion in equity funding back in, let's see, 2026 up to September 10th. Okay, so fairly recently, parts of the sector again pursuing growth. Where are the real opportunities? Where are the traps? And is it worth waiting for a broader REIT recovery in this interest rate environment that we find ourselves in? Kenny Loh, REIT Specialist, Wealth Advisory Director. Also, we see the bond market moving quite significantly, right? So what does all these moving parts have to do with sREITs? Let's check in with Kenny Loh. How are you Kenny? Good morning.

Kenny Loh (1:14)

Good morning, Michelle. I'm good. Thank you.

Michelle Martin (1:16)

Very nice to speak with you. Let's take the temperature of the sREIT market. Have you seen who's moving? Who are the clear winners and losers to date from where you sit?

Kenny Loh (1:24)

Yeah, Michelle, if we look straightly at the share price since the start of beginning of this year, 2026, actually, my honest answer would be they are virtually no winners.

Michelle Martin (1:34)

Oh, gosh.

Kenny Loh (1:35)

Because we are no winners. Because persistent rate uncertainty for these coming to nine months has kept the equity valuation pinned down across the entire board, entire weight sector. So if you look at the FTSE Singapore re-index, it has dropped from 2026 high of 725 to 633 as of yesterday closed. So there is a 12.6% year-to-date decline. But however, they are not so everything is bad news. Beneath those flat price chart, actually, we are seeing a major operational divergent in terms of the earnings and also the DPO.

So the outperforming side of this cash shape, because some of the rates perform quite badly, some of the shapes, they are having a good growth in the DPO. That's why I call it cash shape. Those rates actually delivering the genuine DPO expansion, like CICT, TEPAD, DC rate, land-based global commercial rate, Alpha-integrated rate. Actually, for the past few quarter, you can see that actually their DPO start to grow again. So, they are also benefiting from the lower domestic SORA rate compared to the peak year.

Michelle Martin (2:49)

Sorry, they are benefiting from the lower domestic what rate?

Kenny Loh (2:52)

SORA, the Singapore overnight rate. Okay.

And also, they are doing the active portfolio restructuring and also the strong local vendor reversion. Basically, for those portfolio in Singapore and also borrowing in a single dollar, they are tends to perform well relatively compared to those overseas effects. Right. On the losing end, actually, you have offshore commercial effects, especially US office rate, and also those rates with high leverage, small cap actually suffering from the structured GPU cut from the sticky, over sea borrowing cost, and also persistent vacancy rates. So basically, in short, it's a pair shape for the whole sector.

Michelle Martin (3:36)

Pair shape, so not moving. Pair shape?

Okay. Right, the K shape. Yeah. Okay. So some sectors moving strongly upwards, and the others moving in a very different direction, primarily because they're facing different structural pressures. Is that what you're saying?

Kenny Loh (3:55)

Yeah, different structure and also different rental revisions based on the domestic market itself, and also the borrowing cost, because some of the REIT or most of the REIT have property in Singapore, they are actually borrowing in SING dollars. But for those who have an overseas portfolio, they are borrowing in the maybe USD, then they will be suffer from a higher REIT.

Michelle Martin (4:18)

Just a quick question on those on the K, the downward leg of the K. Are these REITs that have endured several difficult years now?

Kenny Loh (4:30)

Yes. You can see from there, the portfolio valuation dropped and at the same time, their gearing ratio shoot up. If you just scan across on the whole gearing ratio for the REIT sector itself, I can see some of the strong correlation between the price to bulk to the gearing ratio. When a gearing is high, the price to bulk gap or discount tends to be wider.

Michelle Martin (4:53)

Kenny, REIT investors have endured several difficult years by now.

What do you say to investors who are sitting on sizable losses? What is the decision framework they might want to walk through? Hold, collect the distributions, average out, admit that the original investment thesis has changed radically, get out? What do you say?