What could buoy Singapore REITs' anemic DPU growth?

New acquisitions can offset decelerating growth.

As Singapore real estate investment trusts (REITs) succumb to supply pressures, smaller caps and underperforming hospitality sector, its only hope to boost DPU growth to increase acquisitions.

According to a report by CIMB, the second quarter results showed that whilst balance sheets remain strong and book values robust, some stresses are starting to show in the operating metrics, such as negative rental reversions or declining spot rents/room rates.

In the city-state, REITs recorded a 0.6% YoY decline in DPU, mostly led by hospital and selected industrial REITs which registered weak revenue per available room (RevPAR) and rental performance.

with this, growth outlook for REITs has become generally muted, with an expected growth of 2% to 3% over the next two years as economic growth decelerates.

"To offset this, we think REITs can drive DPU expansion beyond the lacklustre organic growth prospects with new acquisitions, asset enhancement initiatives, and development activities," the report said.

The report noted that S-REITs will stll be able to source for domestic retail and industrial assets but will have to tap overseas office, hospitality, and healthcare sectors for accretive acquisitions.

More so, the report stressed that S-REITs can tap alternative funding sources, such as perpetual securities.

"Hence, we expect acquisition growth drivers to remain very visible within this sector, including both onshore and offshore assets," CIMB stated.