Hospitality lags while industrial S-Reits defy tariff concerns in H1 results

[SINGAPORE] While the hospitality sector “disappointed” in the latest half-year results for Singapore real estate investment trusts (S-Reits), the industrial sector turned in a better-than-expected performance despite concerns over the impact of US tariffs, analysts said.

Overall, analysts agreed that S-Reits’ latest results were largely in line with market expectations.

Of the 31 trusts that provided revenue data, 16 reported a decline, while 15 posted higher revenue compared to the same period last year. Net property income (NPI) fell for 20 out of the 33 trusts that reported this figure, with 12 posting increases and one trust showing no change year on year.

For distribution per unit (DPU), 18 out of 32 trusts recorded declines, while 12 saw increases. Two trusts reported no change from a year ago.

Among the weaker-performing sub-sectors was hospitality.

Vijay Natarajan, analyst at RHB Bank Singapore (RHB), said: “The hospitality sector disappointed with a larger-than-expected decline in revenue per available room (RevPar) in H1 due to the absence of large-scale events and the stronger Singapore dollar.”

Nevertheless, other analysts, including Krishna Guha of Maybank and the team at Macquarie Equity Research, noted that the sector’s performance reflected a “normalisation” after last year’s strong event line-up, which helped boost tourist arrivals.

Industrial performance

Industrial S-Reits, on the other hand, appear to have been unaffected by US tariffs so far. Analysts noted that rent reversions held up, despite initial concerns that tariffs would weigh on the sector’s earnings for the latest half-year.

“Most industrial S-Reit tenants have limited business exposure to the US and primarily operate domestically,” said Darren Chan, senior research analyst at Phillip Securities Research.

Even so, Guha believes that tariff impacts – while not yet evident – could surface progressively as tenants renew leases.

Overall, the industrial sector posted a mixed performance. While ESR Reit and Aims Apac Reit reported higher DPUs, CapitaLand Ascendas Reit (Clar), Mapletree Logistics Trust (MLT) and Mapletree Industrial Trust saw declines.

Natarajan noted that Singapore’s industrial and logistics sectors could benefit slightly from a potential demand shift from neighbouring countries to Singapore in the coming months, as the tariff rate imposed on the Republic is lower than that on its neighbours.

Falling interest costs

On the whole, many S-Reits enjoyed savings on interest costs compared to a year ago, said Chan. He attributed this to the lower three-month Singapore Overnight Rate Average (Sora), the benchmark interest rate, which has fallen by more than 50 per cent year on year.

Singapore-centric Reits, in particular, posted a faster-than-expected decline in interest costs, observed Natarajan.

Macquarie Equity Research noted on Aug 19 that it believes the re-rating cycle for interest rates has begun. Recent S-Reit bond issuances – which indicate borrowing costs – were priced at 2.45 per cent, lower than before.

“We continue to see stronger evidence of interest cost savings, with Mapletree Pan Asia Commercial Trust (MPACT) and Keppel Reit joining the list of beneficiaries,” said Macquarie’s analysts.

Analysts also observed that S-Reits have been more active in recycling capital in 2025 compared to previous years. Capital recycling refers to divesting assets and redeploying the proceeds into higher-yielding acquisitions.

“Based on our calculations, S-Reits have announced divestments worth S$2.6 billion year to date, up from S$1.6 billion during the same period last year,” said RHB’s Natarajan.

Outlook

Natarajan expects S-Reits’ DPU and net profits to continue improving on the back of declining interest rates, strong operating performance and valuation gains.

“A few S-Reit initial public offerings are also in the pipeline, which could increase investor interest in the sector,” he added.

Maybank’s Guha advised investors to maintain positions in Singapore-focused large-cap S-Reits and selectively in offshore names. Maybank’s preferred picks include CapitaLand Integrated Commercial Trust, Clar, Frasers Centrepoint Trust, MLT, MPACT and Parkway Life Reit.

“With interest costs easing and further rate cuts on the horizon, now appears an opportune time to reposition into S-Reits,” said Chan.