To The Moon

$CapitaLandInvest(9CI.SI)$

Singapore’s REIT (S-REIT) market has entered 2025 with renewed vigor. CapitaLand Integrated Commercial Trust (CICT) and CapitaLand Ascendas REIT, two of the largest and most liquid trusts on the SGX, have surged to fresh 52-week highs, reflecting both local and global investor optimism about the sector. REITs have always been a cornerstone of Singaporean investing—valued for steady cash flow, generous dividend payouts, and the country’s unique tax advantages.

But the rally raises critical questions. With valuations climbing, are S-REITs still attractive buys? Should investors pick individual names like CapitaLand Ascendas or Mapletree Logistics—or does it make more sense to go with broad-based S-REIT ETFs that spread risk across the sector? And with U.S. Federal Reserve rate cuts widely expected later this year, how will the interest rate environment shape returns?

This article takes a closer look at where the S-REIT market stands today, the ETF vs. single-REIT debate, and what strategies long-term investors might consider as we head deeper into 2025.

The Evolution of S-REITs: Why They Matter

The Singapore REIT market was launched in 2002 with the listing of CapitaLand Mall Trust. Since then, the sector has grown to over S$100 billion in market capitalization, spanning more than 40 trusts across commercial, retail, industrial, hospitality, and niche sectors like data centers and healthcare.

What makes S-REITs special is their tax transparency framework: REITs that distribute at least 90% of their taxable income are exempt from corporate tax, and distributions to individuals are also tax-free. This puts them in a structurally advantaged position compared to REITs in other regions, where dividends may be subject to multiple layers of taxation.

Over the years, S-REITs have built a reputation as:

• Stable yield vehicles – Long leases and recurring rental income provide predictability.

• Inflation hedges – Many lease agreements include rental escalation clauses tied to CPI or market benchmarks.

• Diversification tools – Unlike buying individual properties, investors can get exposure to large, diversified portfolios with relatively small amounts of capital.

• Global plays via Singapore listing – Many S-REITs own assets outside of Singapore, from European offices to Australian malls, giving investors global diversification without leaving the SGX.

In short, S-REITs are not just real estate investments; they’re a uniquely Singaporean success story in financial innovation, combining stability with accessibility.

Why the Rally in 2025?

The surge in CapitaLand-linked REITs to 52-week highs is part of a broader wave across the sector. Four main drivers explain this momentum:

1. Global Yield Compression

Bond yields, which peaked in 2023–24 as global central banks tightened policy to fight inflation, have since retreated. Singapore 10-year government bond yields, which touched around 3.5% in 2023, have drifted closer to 2.7% in mid-2025. That gap matters: when REITs are yielding 5–6%, the spread over risk-free rates becomes a key driver of institutional inflows.

2. Operating Resilience

Despite global economic uncertainty, S-REITs have shown resilience. Industrial and logistics REITs, such as Ascendas REIT and Mapletree Logistics Trust, continue to benefit from e-commerce growth and demand for supply chain resilience. Retail REITs like CICT have enjoyed footfall recovery as tourism rebounded. Hospitality REITs, once battered by the pandemic, have seen RevPAR (revenue per available room) surge with international arrivals climbing.

3. Interest Rate Outlook

The U.S. Fed is expected to cut rates by 50–75 basis points in 2025, easing pressure on leveraged vehicles like REITs. Singapore banks, which provide much of the sector’s debt financing, typically follow global benchmarks, meaning funding costs should decline. Since debt often represents 30–40% of a REIT’s capital structure, lower interest expenses directly boost distributable income.

4. Structural Investor Demand

With an ageing population in Singapore and across Asia, there’s rising demand for income-generating assets. S-REITs, offering yields higher than fixed deposits or CPF-linked products, remain attractive to retirees and income-focused investors.

Put together, these forces explain why CapitaLand REITs—and the broader S-REIT sector—have been climbing higher.

ETFs vs. Picking Individual REITs

Now comes the big question: should investors try to pick winners, or simply hold the whole basket via ETFs?

The Case for Individual REITs

• Targeted Exposure – Investors can align holdings with specific macro trends (e.g., logistics REITs for e-commerce growth, data center REITs for AI demand).

• Alpha Potential – Outperformance is possible if one identifies REITs with strong acquisition pipelines, positive rental reversions, or undervalued NAVs.

• Customization – Investors can exclude sectors they dislike (e.g., offices if bearish on work-from-home trends).

The Case for REIT ETFs

• Diversification – Reduces single-asset or single-sector risk. For example, retail REITs may lag, but logistics can offset.

• Lower Monitoring Burden – Investors don’t need to track dozens of earnings reports, acquisitions, and refinancing schedules.

• Liquidity and Cost Efficiency – ETFs provide broad exposure at relatively low expense ratios (0.5–0.7%).

For most retail investors, an ETF provides a core allocation, while adding 1–2 individual REITs can be a tactical choice for higher conviction bets.

The Main S-REIT ETFs Compared

Three ETFs dominate the market. Here’s a closer look:

1. Lion-Phillip S-REIT ETF

• Index Tracked: Morningstar Singapore REIT Yield Focus Index

• Composition: ~28 S-REITs across all subsectors

• Dividend Yield: ~5.5% (historical)

• Strengths: Most established, good liquidity, strong retail investor following

• Weaknesses: Purely Singapore exposure, no regional diversification

2. CSOP iEdge S-REIT Leaders ETF

• Index Tracked: iEdge S-REIT Leaders Index

• Composition: Concentrated on the largest 20 REITs

• Dividend Yield: ~5.2%

• Strengths: Large-cap focus reduces liquidity risk, strong representation of blue chips like CapitaLand and Mapletree

• Weaknesses: Less exposure to smaller niche REITs that may outperform

3. NikkoAM-StraitsTrading Asia ex Japan REIT ETF

• Index Tracked: FTSE EPRA Nareit Asia ex Japan REITs Index

• Composition: ~40 REITs across Singapore, Hong Kong, Australia

• Dividend Yield: ~4.5%

• Strengths: Regional diversification; captures Australia’s mature REIT market

• Weaknesses: Lower yield, currency risks from AUD and HKD

If one could only pick a single ETF, the Lion-Phillip S-REIT ETF remains the most compelling for Singapore-based investors due to its deep local exposure, reliable dividend track record, and strong retail following. It is the “default” S-REIT ETF in many CPF and SRS portfolios.

Should You Chase the Rally or Wait?

This is where valuations matter. As of August 2025:

• Sector average Price-to-NAV: ~1.05x (back above parity, after trading at 0.85x–0.95x during 2023–24).

• Dividend Yields: 5–6%, still attractive but no longer deeply discounted.

So, is it time to chase?

• Reasons to Buy Now

  Locking in current yields before further compression.

  Exposure to potential capital gains if Fed cuts accelerate.

  Long-term investors can reinvest dividends, smoothing entry timing.

• Reasons to Wait

  Sector is not cheap by historical standards.

  Any disappointment in rate cuts could trigger corrections.

  Geopolitical risks (e.g., trade tensions, China slowdown) could hurt sentiment.

A prudent strategy may be phased accumulation—buying in tranches over several months, rather than going all-in at once.

How Would Fed Cuts Impact S-REITs?

The relationship between interest rates and REITs is well studied:

• Positive Impact: Lower borrowing costs (more distributable income), higher relative yield appeal, and rising asset valuations (cap rates compress when rates fall).

• Neutral/Negative Impact: If rate cuts occur because of economic weakness, tenant demand may soften, hurting occupancy and rental growth.

In Singapore’s case, the effect is likely net positive because many S-REITs have strong balance sheets, staggered debt maturities, and manageable refinancing schedules. A 50–75bps cut could improve DPUs by 3–5% across the board.

Risks to Watch

Investors should also keep in mind several risks:

1. Geopolitical Uncertainty – Asia remains vulnerable to trade wars or geopolitical conflicts that can affect capital flows.

2. Sector-Specific Challenges – Office REITs may struggle if hybrid work continues to cap demand. Retail faces e-commerce pressure, despite short-term footfall recovery.

3. Currency Exposure – Many S-REITs earn overseas income (AUD, USD, EUR), so FX fluctuations can impact distributions.

4. Valuation Stretch – At 1.05x P/NAV, the margin of safety is thinner compared to past buying opportunities.

Final Thoughts: The Smarter Play in 2025

The resurgence of S-REITs reflects both macro tailwinds (rate cuts, yield spreads) and structural strengths (tax transparency, income stability). With CapitaLand trusts setting the pace, the sector looks poised to remain a core income-generating allocation for Singapore investors.

But the real question is allocation strategy. For most investors, anchoring portfolios with an S-REIT ETF is the smarter long-term play, providing diversification and steady yield. More active investors can complement that with select single-name REITs, especially in high-growth niches like logistics and data centers.

Key Takeaways for Investors:

1. S-REIT ETFs are ideal as a core holding, offering stable, diversified income with less monitoring.

2. Valuations are no longer cheap, so phased accumulation is a prudent strategy.

3. Fed rate cuts should be a net positive, but investors must watch for economic slowdown risks.

4. Selective opportunities exist in industrial and data center REITs, while office and retail remain more mixed.

For income-focused Singaporeans, REITs remain the foundation of a balanced portfolio. The choice is less about whether to own them, and more about how to own them—via broad-based ETFs or carefully chosen sector champions.