I’m not a big fan of Singapore REITs today.
Because I don’t believe the Fed is done. With persistent inflation, ongoing war, and massive AI spending, history tells me the Fed rarely stops at just one hike.
If rates continue to go up, Singapore REIT shares can fall further from here…
So I’m very picky. Not many Singapore REITs are worth buying right now. Their share prices just don’t offer enough margin of safety.
However, there are only a small handful I like. One of them is CapitaLand Ascott Trust (CLAS). Right now, it pays a nice 7.3% dividend yield.
Not many Singapore blue-chips match this yield. And I wouldn’t pay more than S$1.00 per unit for CapitaLand Ascott Trust. But at today’s current yield, I believe it’s worth buying.
Let me explain.
Asia’s biggest lodging Singapore REIT
CapitaLand Ascott Trust is Asia’s biggest lodging real estate investment trust. At a S$3.2 billion market cap, this blue-chip REIT owns 109 assets valued at S$8.8 billion – mostly serviced residences, hotels and student accommodation.
It has over 19,000 units across the world. This is pure diversification. Most of its assets are freehold. This is a big deal because the REIT doesn’t have to keep raising rights issues to extend land leases.
I don’t expect fireworks for CapitaLand Ascott Trust. In its latest 1H2026 results, revenues and gross profits have fallen marginally because of asset divestments and property renovation.
For example, CapitaLand Ascott Trust recently sold The Robertson House by The Credit Collection in Singapore for S$360 million. It’s also redeveloping the 192-unit serviced residence, Somerset Clarke Quay Singapore.
Both reduced revenues for the REIT in its recent results.
If you don’t want to lose money, this is what’s important next.
You need to know this critical ratio
Singapore REITs are valued by the distribution per unit (DPU) they pay to investors regularly – something like a bond. For an income investor, this distribution per unit is the dividends you collect. Like a bond, you want to pay the “right price” for its dividends.
So one critical ratio you need to know is the yield spread. This is the difference between the dividend yield an investor can earn from the Singapore REIT and the interest a Singapore government bond yield pays on its “risk-free” bond. Because of this, REIT prices are affected by interest rates.
If you can invest in a “risk-free” bond that pays you 2.6%, you wouldn’t accept the risk of buying a REIT unless you can at least get three or even four percentage points of yield more from it. That extra percentage point in yield is the yield spread.
Now I’ve never seen CapitaLand Ascott Trust trade at such high yield spreads over the last ten years. It’s the widest spread so far.
In fact, it’s trading higher than peers in the hospitality and lodging industry. While investors are demanding a spread of ~3% yield for blue-chip REITs, shares of CapitaLand Ascott Trust are offering a spread of at least 4% yield.
Even higher was its yield spread before the COVID-19 pandemic days.
Can the yield spread continue to go up from here? Not impossible. Sentiments play a big role in how stock prices fluctuate. When Mr. Market gets more fearful, the yield spread goes up.
However, I believe CapitaLand Ascott Trust has already been priced at a spread Mr. Market rarely offers. Even if rates keep rising, I believe there’s enough margin of safety.
Why I expect CapitaLand Ascott Trust dividends to keep growing
A closer look at CapitaLand Ascott Trust shows distribution per unit has been largely stable. In its 1H2026 results, distributions rose 11% y/y, while its distributions per unit steadied at 3.25 cents per unit. Not too bad.
Dividends should continue growing…
I expect current assets undergoing renovation – Sheraton Tribeca New York Hotel, Sotetsu Grand Fresu Osaka-Namba, Citadines Place d’Italie Paris and The Cavendish London – to contribute higher revenues once they are completed.
I cannot imagine if companies stop sending people overseas for business travel, or if people will ever stop travelling for holidays. Or students have to stop renting long-term accommodation.
CapitaLand Ascott Trust’s balance sheet is healthy. Only 15% of its total debt matures till 2027. With its 77% fixed rate on total debt, I don’t expect the REIT to struggle paying a huge interest cost on its borrowings.
What’s also comforting is gearing has also dropped to ~37% – down from ~39% over the past quarter after it repaid its higher interest debt in 2Q2026 from one of its asset divestments.
The low gearing gives it plenty of room to expand and grow its revenues.
Next, borrowing costs are among the lowest at ~2.8%. So far, so good. It seems it’s well under control.
My final thoughts
Look, I’m not a big fan of Singapore REITs right now. Last Saturday, Diligence Wealth Club members will know I made an important asset allocation update to my Singapore REITs.
I don’t believe the Fed will stop at just one rate hike at this point. This means, I’m very picky accumulating Singapore REITs today.
Having said that, CapitaLand Ascott Trust is one of the very few Singapore REITs I’m good at accumulating at this price level. I don’t expect fireworks.
But it’s paying a 7.3% dividend yield, with a high yield spread versus the current Singapore 10-year government bond yield. In my view, this is a good enough margin of safety.
And should give a modest return for long-term dividend investors.
Sometimes, investing can be simple.
Willie Keng, CFA
Founder, Dividend Titan
It is good to know the REIT reduced its gearing as when I look at it sometime back, the debt was my biggest concern despite the share price was attractive.
It is time to revisit this and hopefully the current yield is still above 7%.
Hey My Sweet Retirement!
At current interest rate cycle, I’m expecting a much higher return on Singapore REITs. This means looking at a higher yield. Gearing definitely is something to watch.
Cheers,
Willie