S-REITs have raised at least S$4.5 billion in equity funding this year, while average distribution yields of around 6.2% continue to tempt income investors. But after years of weak capital performance, are investors still being paid to wait—or overlooking deteriorating assets and balance sheets?
Michelle Martin speaks with Kenny Loh, REIT Specialist and Wealth Advisory Director, about where he would average down, which headline yields may be value traps, whether banks and bonds now offer better income, and if data-centre REITs provide genuine exposure to the AI boom.
Click to listen to Podcast
Michelle: "Let’s take the temperature of the S-REIT market first. Where are we now—and who have been the clear winners and losers to date?"
Kenny: "Michelle, if we look strictly at share prices since the start of 2026, the honest answer is: there are virtually no winners. Persistent rate uncertainty has kept equity valuations pinned down across the entire board. FTSE ST REIT Index has dropped from 2026 high of 725 to 633 as of yesterday close. (12.6% YTD declines)
However, beneath those flat share price charts, we are seeing a major operational divergence in earnings and DPU.
The outperforming side of this 'K-shape' belongs to REITs delivering genuine DPU expansion—like CapitaLand Integrated Commercial Trust (CICT), Keppel DC REIT, Lendlease Global Commercial REIT, Alpha Integrated REIT. They’re benefiting from lower domestic SORA rates compared to peak years, active portfolio restructuring, and strong local rental reversions.
On the losing end, you have offshore commercial assets—especially US office REITs—and highly leveraged small-caps suffering structural DPU cuts from sticky overseas borrowing costs and persistent vacancy risks."
Michelle: "REIT investors have endured several difficult years. Is the pain still mainly an interest-rate story, or are we now seeing a much bigger divide between REITs with genuinely strong assets and balance sheets and those with structural problems?"
Kenny: "It was an interest-rate story, but now it’s purely a fundamental story.
When rates spiked, the rising tide dragged all ships down together. But now that rates have plateaued for a while, the tide is out (the REIT Managers have sufficient time to make adjustment to their portfolio and optimise the capital structure)—and we can clearly see who’s been swimming without shorts.
The divide comes down to two things: aggregate leverage and rental reversions. The strong blue-chips kept debt hedges above 70%, maintained leverage below 40%, and can push through positive rental growth to offset elevated debt costs. The weaker, un-hedged REITs with >40% gearing are forced to absorb negative reversions while paying steep interest expenses. Rate cuts alone won't fix a broken asset structure."
Michelle: "For investors sitting on sizeable losses, what’s the decision framework now: hold and collect distributions, average down, or admit the original thesis changed and get out?"
Kenny: "I break it down into three clear rules for my clients:
First, Hold and Collect if the operational thesis is intact—meaning positive rental reversions, covered distributions, and a manageable debt expiry profile. You’re being paid to wait.
Second, Average Down only on high-quality operational winners whose stock prices were dragged down by macro sentiment, rather than broken business models.
Third, Cut Losses if you see structural DPU erosion, gearing creeping past 42–45% without a clear recapitalization plan, or fundamental sector decay like secondary US office space. Don't let price anchoring trap your money when higher-yielding, lower-risk opportunities exist else where."
Michelle: "Where would you actually be prepared to average down today? Which S-REIT segments give you the best combination of sustainable yield and potential capital upside?"
Kenny: "I would comfortably average down in Suburban Retail, Logistics, and select Data Centers.
Suburban retail hubs like Frasers Centrepoint Trust or CICT enjoy sticky essential consumer spending and tight supply. Industrial and logistics REITs continue to capture supply chain shifts across Southeast Asia.
My strict rule for averaging down: look for strong sponsor backing, low aggregate leverage (ideally under 40%), active capital recycling, and proven DPU resilience."
Michelle: "And where would you not average down, however attractive the headline yield looks? What tells you a 6% or 7% yielding REIT is actually a value trap?"
Kenny: "When an S-REIT trades at an 8% to 11% headline yield, the market isn't giving you a bargain—it's pricing in a dividend cut, an asset write-down, or a rights issue.
The ultimate red flags for a value trap are:
-
A 'refinancing wall' where a massive block of debt matures within 12 months at much higher rates.
-
Interest Coverage Ratios (ICR) dropping close to MAS's regulatory threshold of 1.5x.
-
Persistent negative rental reversions year after year."
Michelle: "If you’re tired of waiting for S-REITs to recover but still want income, what competes most convincingly for that money today—banks, bonds, income ETFs, or something else?"
Kenny: "Singapore Banks—DBS, OCBC, UOB—remain the most direct competitor. They offer strong dividend yields backed by robust capital ratios and excess capital management. However current valuation is stretched for these banks (DBS 3.1x PB with 3.2% yield, OCBC 2.3x with 2.6% yield)
Beyond equities, S$ IG corporate bonds (3-5%), private credit (7-10%), and high-dividend yield ETFs give investors steady 5% to 6% yields without single-stock volatility. REITs still belong in an income portfolio, but today's market demands a barbell strategy alongside fixed income and high-dividend equities."
Michelle: "One argument for staying with REITs is that you’re being paid while you wait. But after years of weak capital performance, should investors pay much more attention to total return rather than distribution yield?"
Kenny: "100%, Michelle. Yield without capital preservation is an illusion. A 7% yield means nothing if the underlying Net Asset Value (NAV) drops 10% every year.
Total return is Distribution Yield plus NAV growth. Investors must look past headline yield and choose REIT managers who create value through Asset Enhancement Initiatives (AEIs) and selling non-core properties above book value to pay down debt."
Michelle: "What about the rate cycle? Are we at the point where a good REIT should be able to perform without needing interest rates to fall dramatically?"
Kenny: "Absolutely. A high-quality REIT should never rely on a central bank bailout to survive.
The best managers have already adapted to this 'higher-for-longer' baseline. They’re running high occupancy rates above 95%, generating organic rent growth of 5% to 10%, and recycling non-core assets to keep their cost of debt low. Lower rates will be a welcome bonus, but the true winners are already performing today."
Michelle: "There’s also been huge enthusiasm around data centres because of AI demand. Are data-centre REITs genuinely a way for income investors to participate in the AI boom, or are investors paying too much for that narrative?"
Kenny:"It is a genuine structural tailwind, but retail investors need to look past the hype.
AI expansion requires massive power capacity and hyperscale facilities, which benefits names with deep pockets. But data centres carry huge capital expenditure costs, rapid tech obsolescence, and power grid constraints.
Data centre REITs are a solid growth sleeve for an income portfolio, but you must evaluate power capacity rights and tenant creditworthiness rather than buying blindly into the 'AI' label."
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