Singapore-listed REITs, or real estate investment trusts, are a favourite investment vehicle for many Singaporean investors.

REITs provide investors with the opportunity to invest in property and also provide much more liquidity than investing directly in real estate. In addition, many REITs in Singapore have juicy trailing distribution yields that can be as high as 9%. And with interest rates likely on the decline, REITs can also benefit from lower interest expenses and so can have higher distributions to unit holders.

Given the above, I did some research on REITs recently to see if there were any that might be attractive opportunities. But as I conducted my study, I noticed some common issues about REITs that may end up being a drag on their future distributions per unit. 

Here’s what I found.

Management fees that are paid in units 

A common theme I noticed about REITs in Singapore is that most of them pay the bulk of the REIT manager’s fees with units in the REIT. 

Take a look below at Keppel DC REIT’s (SGX: AJBU) financial statement for the first half of 2025. They show the adjustments made to Keppel DC REIT’s net profit to determine the income available for distribution. One of the adjustments made is the management fees paid in units.

To prop up a REIT’s distribution per unit (DPU), a REIT’s manager can choose to receive its fees in units of the REIT instead of cash, since doing so means cash can be returned to shareholders. But this will be a drag to a REIT’s DPU over the longer term for two reasons.

First, once the REIT’s manager opts to receive all or a bigger portion of its fees in cash, the amount available for distribution to unitholders will decline (all other things remaining constant). Second, because the REIT manager opted to receive its fees in units in the past, the REIT had to issue new units, which resulted in a higher unit count; future distributions are thus divided across a larger unit base.

Keppel DC REIT is not the only REIT that does this. In fact, it is common practice across REITs in Singapore. 

Sasseur REIT (SGX: CRPU) is another example. Take a look at the REIT’s condensed income statement for the first half of 2025:  

The base fee of Sasseur REIT’s manager that is paid in cash increased by S$0.4 million from the first half of 2024 to the first half of 2025. This is because the REIT manager opted to receive 30% of its base fee in cash in the first half of 2025, rather than the 20% it chose for the first half of 2024. This is a real case of how the DPU of a REIT can decline simply because a REIT’s manager chooses to receive less of its fees in cash.

The way I see it, the DPU of Sasseur REIT is being propped up by the REIT manager’s decision to receive some or all of its fees in units rather than cash. Once this goes away, DPU will be pressured.

Another example is Frasers Logistics & Commercial Trust (SGX: BUOU). These are the adjustments the REIT made to obtain its distributable income:

For Frasers Logistics & Commercial Trust, the column on the right of the table refers to the first half of FY2024 and the column on the left refers to first half of FY2025. In both periods, the REIT added a significant amount of “management fees paid in units” to net income, which puffed up distributable income. But in the first half of 2024, 100% of the REIT’s management fees were paid in units while in the first half off 2025, only 43% was so. Because of this change, Frasers Logistics & Commercial Trust had a lower upward adjustment to distributable income in the first half FY2025, which was one of the reasons its DPU to shrank year-on-year.

Watch for capital distribution

Another thing to look out is whether the DPU is being bumped up by one-off or short-term capital distributions. We can return to Frasers Logistics & Commercial Trust as an example.

The image above shows that Frasers Logistics & Commercial Trust’s total distributable income were bumped up by capital distributions in both the first half of FY2025 and the first half of FY2024.

The problem is capital distributions are one-off, or short-term distributions, and are dependent on gain on divestments. A REIT’s manager may decide to retain or distribute capital gains depending on the REIT’s performance for the year in order to “smoothen” out distributions. But as investors, we should note that these are not long-term solutions and eventually this capital distribution buffer may run out.

We can look at Far East Hospitality Trust* (SGX: Q5T) as an example:

Far East Hospitality Trust’s distribution to stapled security holders include distributions from other gains. The stapled trust divested one of its properties in 2022 and has since been distributing the divestment gains to unitholders at around S$8 million annually; the manager of the trust had decided to distribute the divestment gains over a few years to smoothen the trust’s distribution per stapled security (DPS). But as with all capital distributions, the well will eventually run dry, and absent the capital distribution, the DPS will likely drop.

*Far East Hospitality Trust is technically not a real estate investment trust. Instead, it is a stapled trust consisting of Far East Hospitality Real Estate Investment Trust and Far East Hospitality Business Trust. But for the purposes of this article, there’s no need to split hairs.

Interest rate sensitivity

When looking at how sustainable a REIT’s DPU is, we also need to look at its interest rate sensitivity. REITs have been reporting rising finance costs in the last few of years as their debt gets refinanced at higher rates or as their floating rate debt gets repriced. The rising finance costs have been a drag to their DPU.

This why I prefer a REIT with a high interest coverage ratio. A higher interest coverage ratio means that a change in interest rates would have a smaller impact on distributable income.

Imagine a REIT with an interest coverage ratio of 5. All else equal, a 20% increase in finance costs will only lead to a 5% decline in DPU. Comparatively, a REIT with an interest coverage ratio of 3 will suffer a 7% decline in DPU. 

CapitaLand Integrated Commercial Trust (SGX: C38U) has an interest coverage ratio of 3.3, shown in the table below, which looks fairly low to me and suggests that the REIT’s DPU is sensitive to interest rate hikes. But we are in a fairly high interest rate environment at the moment, so it is perhaps more common for interest coverage ratios to be on the lower end of the spectrum during this time.

Final Takeaways

Singaporean investors invest in REITs for steady income.

Although Singapore-listed REITs have historically performed decently, investors still need to assess if a REIT’s DPU can be sustained in the long-term. To do so, they can peer under the hood and determine if the REIT’s DPU could be pressured by (1) a higher unit base, (2) the end of capital distributions, and (3) the end of fees being paid in units.

It is also important to assess how sensitive a REIT’s DPU is to interest rate spikes. Rates may be likely to be on a downtrend in the near future, but there may be times ahead when interest rates spike again.

Disclaimer: The Good Investors is the personal investing blog of two simple guys who are passionate about educating Singaporeans about stock market investing. By using this Site, you specifically agree that none of the information provided constitutes financial, investment, or other professional advice. It is only intended to provide education. Speak with a professional before making important decisions about your money, your professional life, or even your personal life. I don’t have a vested interest in any company mentioned. Holdings are subject to change at any time.