3 Key Catalysts for a Sustainable Recovery in REIT Share Prices

Daniel Lee

2 hours ago4 min read

With the recent mini-recovery in Singapore REITs, I noticed that there is a mini-hype in the retail scene with an increase feelingless of "Fear of Missing Out" which feels like a major Deja Vu given the common occurrence of mini-rallies in the last 12 months only to fade into oblivion.

While I cannot predict if this round of mini-price recovery can continue, what I can do in this article is to share with you three major catalysts that may drive a sustainable recovery that was missing in all previous recoveries.

1: DPU Growth from Reduced Borrowing Cost

One of the biggest challenges for REITs in recent years has been the impact of rising interest rates on borrowing costs. REITs rely heavily on debt financing, and when interest rates are high, a significant portion of their rental income is used to service debt, reducing the amount available for distribution to investors.

With the anticipated global decrease in interest rates, borrowing costs for REITs are expected to decline, leading to higher distributable income. This increase in cash flow should directly translate to a higher distribution per unit (DPU), making REITs more attractive to income-focused investors.

Since share prices and dividend yields are closely linked, a higher DPU will naturally push share prices higher as investors seek to lock in consistent yields relative to historical standards.

Unlike past rallies driven purely by speculation, this catalyst is fundamentally rooted in REITs' improved financial performance, making it a strong driver for sustainable price appreciation.

In fact, based on the most recent Q4 and FY financial reporting, the majority of the REITs listed in Singapore have already reflected a peak in borrowing cost with some of the REITs experiencing a slight decrease in borrowing cost.

That said, given that most of the REITs have already refinanced at a higher rate previously, it is unlikely that the impact of a lower interest rate environment will be reflected immediately in the performance of the REITs.

I’ve previously wrote about it which you can give it a read here: [Rate Cuts] Is It A Good Time To Invest In REITs?

2. Flight To Safety / Sector Rotation

Market uncertainty has often led investors to seek safer investment options, and this time is no different. As global economic conditions remain volatile, there is growing interest in defensive assets that offer stable cash flows and lower risk exposure — qualities that align well with REITs.

Additionally, a sector rotation effect may be unfolding as investors who previously allocated capital into bank stocks and high-interest savings instruments begin seeking alternative income-generating assets.

With interest rates expected to decline and bank shares at record-high valuations, traditional banking investments may no longer provide the same level of returns, making REITs an attractive alternative for yield-seeking investors.

This shift in investor preferences is likely to drive an influx of institutional and retail funds into REITs, leading to higher demand and an upward revaluation of share prices. Unlike previous speculative rallies, this catalyst is backed by a structural change in investor behaviour, reinforcing its potential sustainability.

3. Government Initiatives

The last catalyst comes from the Monetary Authority of Singapore (MAS) initiative to revive Singapore’s stock market.

Under this initiative, MAS is rolling out a new $5 billion fund to attract institutional investors, entrepreneurs, business owners, and high-net-worth individuals to invest in Singapore-listed securities, including REITs.

If these initiatives are effective, they could drive a fresh wave of capital into the REIT market, similar to the sector rotation discussed earlier. Increased institutional participation can provide additional liquidity, price stability, and valuation support to the REIT sector, reinforcing its long-term attractiveness.

With Singapore being one of the largest REIT hubs in Asia, a successful revival of its stock market could reshape investor confidence in REITs, making them a core investment choice rather than an afterthought.

For more details on this initiative, refer to the original report here

Conclusion

While sector rotation and increased institutional investment can provide strong tailwinds for a short-term REIT rally, a truly sustainable recovery can only come from fundamental improvements in DPU growth.

If DPUs remain stagnant or depressed, any recovery in share prices will be short-lived, as investors will ultimately demand an attractive dividend yield. Just as rising DPUs justify higher share prices, a lack of distribution growth would keep share prices suppressed to maintain yield expectations.

Ultimately, the key to a sustainable REIT recovery lies in increased distributable income, driven by lower borrowing costs and improved operational performance. Investors looking for long-term gains should focus on REITs with a clear path to higher DPUs, ensuring both capital appreciation and reliable income generation

If you would like to read my analyst report on Singapore Listed REITs, you can find them on my telegram channel:

*Join the channel → click on the channel name → under files → download the report you want!

If you would like to learn about REIT investing, you can find my entire methodology in my eBook: Retire With REITs here:

If you are looking for personalized financial advice, I offer a 1-to-1, fee-only consultation where you will receive personalized strategies to design, implement and manage a profitable REIT portfolio. You can find out more about it here: