“We anticipate office REITs to re-rate as the market shifts from a negative carry situation—where office cap rates of 3.3-3.4% are lower than the debt funding cost of 3.5%—to positive carry, with borrowing costs expected to decline to 3.2% in FY2026,” JP Morgan says in its Keppel REIT update dated Oct 27.
According to Khi and Song, Keppel REIT's pivot to higher-yielding retail assets - albeit in Australia - with the acquisition of a 75% stake in Top Ryde Shopping Centre in Sydney for $334.8 million at a 6.75% initial yield (96% occupied), improves the net property income (NPI) yields compared to Keppel REIT’s existing sub-4% portfolio yields.
“The passing yield of 6.56% compares favorably with recent transactions in New South Wales, including Bankstown Central (6.18%) and Westpoint Blacktown (6.27%), in our view. This brings Keppel REIT’s retail exposure to 4% from 1% previously, versus the 20% medium-term target,” the duo says.
The JP Morgan analysts are expecting low-to-mid-single-digit NPI growth for the asset, “with upside if Keppel REIT is able to deliver on guidance for high-single-digit NPI growth,”.
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Against this backdrop, Khi and Song are expecting Keppel REIT to deliver a 5% core three-year DPU Cagr mainly on lower borrowing costs, with every 10 basis pionts of interest cost savings translating into 1.4% DPU uplift, aided by the higher yielding Australian retail asset.
In addition, the duo expect Singapore Grade A office to post mid-single-digit-to-double-digit rent reversions and resilient occupancies. Keppel REIT owns a one-third stake in One Raffles Quay, and Marina Bay Financial Centre towers 1, 2 and 3, and 90% of Ocean Financial Centre which are top notch office properties. Keppel REIT has backfilled vacated space by anchor tenant BNP Paribas in Ocean Financial Centre, with 73% backfilled at strong reversions. “We also see the prospect of additional backfilling as tenants continue to upgrade to high-quality office space,” JP Morgan says.
In terms of pipeline, Keppel’s group CEO Loh Chin Hua has said that divesting Keppel South Central into Keppel REIT is a possibility but the property must be stabilised first. Currently the property’s occupancy is being ramped up.
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Keppel REIT reports its 3QFY2025 business updates on Oct 29. Based on its annualised DPU, the DPU yield stands at 5.18% following a 1.94% price change to $1.05 on Oct 28 morning. YTD Keppel REIT’s unit price is up 20.69%
MLT to benefit from investor interest
Separately, JP Morgan has upgraded Mapletree Logistics Trust to overweight from neutral despite the REIT facing headwinds in North Asia, and on the forex front. “We expect investors to focus on MLT’s operations starting to stabilise, which is a powerful catalyst as seen by Mapletree Pan Asia Commercial Trust’s outperformance (+16.6% total return versus STI’s +5.3%) over the past three months,” Khi and Song write in their Oct 27 report. The duo had upgraded MPACT in early September. MPACT’s DPU grew by 1.5% y-o-y in its 2QFY2026 (year end March) quarter, supported by VivoCity’s performance.
MLT’s DPU is expected to fall by 10% y-o-y for 2QFY2026 (year-end March), and FY2026’s DPU is also expected to decline.
However, JP Morgan expects higher fund flows - either from passive funds and/or investors chasing yield - over the next year, “triggering a re-rating”. Additionally, private banking clients and family offices are also searching for yield, given the low cost of margin debt of mid-1% to low 2%, compared to MLT’s historic DPU yield of 6.1%.
Investors will probably be additionally attracted to MLT following an improvement in the quality of DPU as distributions from divestment gains, which represented 7% to 9% of FY2025’s DPU were deemed to be too high by some investors.
With declining interest rates, as evidenced by the falling average cost of debt reported by S-REITs which have announced their July to Sept quarter business updates, MLT could re-start its acquisition strategy.
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“MLT is preparing its balance sheet with disposal of around $99 million of properties,” JP Morgan says.
“We turn positive on MLT ahead of the upcoming 2Q2026 results. While we expect DPU to still fall y-o-y over the next few quarters, owing to the removal of capital top-ups, we see the rate of decline decelerating as negative rental reversions in China moderate. We also expect FY2027 DPU to inflect higher (+1.7% y-o-y) as MLT benefits from the newly completed 5A Joo Koon Circle warehouse, the restart of acquisitions, and a lower cost of debt than our original forecast,” Khi and Song write in their report.
MLT traded at $1.31 at noon on Oct 28 up 1.54% from Oct 27, and it gained just 5.93% year-to-date, underperforming the FTSE REIT Index which is up 13.7% YTD.
