REITs set to outperform in 2025 with positive rental reversions: CGS

The firm has slightly raised its CYF MSCI target to 411.7 points, up from 409.3 points previously.

CGS International reaffirmed their bullish outlook on REITs and maintained an overweight (OW) stance on Capital Goods, Consumer, Construction, Gaming, Technology, Gloves, Internet, and Commodities.

Despite economic uncertainties, the firm has slightly raised its CYF MSCI target to 411.7 points, up from 409.3 points previously, driven by 15x CY25F earnings projections.

Despite broader market uncertainty, REITs are set to outperform, CGS analysts said, citing peaking fund costs and positive rental reversions.

They expect DPU (distribution per unit) growth of 1% in 2025F, positioning REITs as a strong defensive play. Lower interest rates are also expected to enhance REITs’ acquisition capabilities, adding further upside potential.

Singapore remains an attractive market for dividend-seeking investors, analysts noted, with MSCI SG’s dividend yield projected to rise from 4.1% in FY24 to 4.6% in FY25F.

They highlighted that 53-60% of covered stocks are expected to deliver dividend growth over the next two years.

Beyond the banking sector, Singapore-listed companies such as STE, SCI, YZJSGD, CLI, and UOL have made moves to increase shareholder returns through higher dividend payouts and improved capital allocation.

CGS analysts maintain an overweight stance on high-growth sectors, including Technology, Gaming, and Commodities, whilst remaining neutral on Banks, Healthcare, Transport, and Telcos (with Starhub recently downgraded).

They have refined their top 10 Singapore stock picks, introducing UOL and KDCREIT, whilst retaining iFAST, CLAR, KEP, YZJSGD, PAN, FEH, MPM, and Q&M.

Stocks such as SCI, ST, STE, STM, and UOB have been removed due to overvaluation and a lack of near-term catalysts, whilst SATS was dropped due to global trade uncertainty.

4QFY24 results revealed mixed sector performances, with Capital Goods, Finance, and Technology stocks leading the outperformers, analysts said.

Notable winners included SGX, iFAST, and YZJSGD, whilst UOB posted stronger-than-expected earnings. However, Property and REITs underperformed, with developers such as CLI, CIT, and UOL missing earnings expectations.

Within REITs, office and retail REITs lagged, whilst diversified, industrial, and hospitality-focused REITs remained resilient.