Keppel REIT share price in explosive destiny

After investing in Mapletree Logistics Trust (MLT) since 2022, one of the biggest lessons learned for me is that past performance of a company is not indicative of future results. Prior to the US Fed interest rate hikes, MLT used to ride high with increasing share prices and distributions for years. However, its misadventure in China, coupled with the high interest rates and strong Singapore dollar, led to challenging times for this STI blue chip. As I am looking for another S-REIT to diversify my portfolio, the recent revival of Keppel REIT share price caught my attention.

Year-to-date, Keppel REIT share price surged by a whopping 18%, vis-à-vis the 2.33% increase for MLT. There are several tailwinds that led to the bullish Keppel REIT share price but the most critical factor should be that 78.5% of its portfolio value is based in Singapore. Its Singapore assets included Keppel Bay Tower, One Raffles Quay, Marina Bay Financial Centre and Ocean Financial Centre. Keppel REIT has a portfolio value of over $9 billion, comprising properties in Singapore; the key Australian cities of Sydney, Melbourne and Perth; Seoul, South Korea; as well as Tokyo, Japan.

I like Keppel REIT for its portfolio concentration in Singapore and nil exposure to China. This is unlike MLT which is struggling financially due to it significant exposure to China. For context, Keppel REIT’s rental reversion for 9MFY2025 was a mighty 12%! Contrast this to MLT’s 2.5% (ex-China). As Keppel REIT’s assets are mostly in Singapore, the S-REIT is less affected by the strong Singapore dollar as compared to MLT.

Previously, I wrote that Keppel REIT share price might decline to $0.70 in 2025 due to the high borrowing cost and weak Aussie dollar. Indeed, Keppel REIT had crashed to $0.78 in Apri 2025 but managed to stage an impressive recovery since then.

Another thing I noticed about Keppel REIT is that it has started to partially pay the management fees in cash starting FY2025. Previously, I highlighted that one of the biggest factors for the weak performance of Keppel REIT share price is the payment of management fees via the issuance of new units. For FY2024, a whopping 65 million units have been issued to the Manager.

Whilst it is a very common practice for S-REIT to make management fee payment through issuance of new units, the management fee of Keppel REIT is one of the highest among the S-REIT. Apparently, Keppel REIT appears to address this concern. Since FY2025, the Manager has elected to receive 25% of its management fees in cash. While 25% may not be a significant portion, it is nevertheless a clear signal that the management is mindful of shareholders’ concerns.

The bullish form of Keppel REIT share price came on the back of US Federal cutting interest rates in 2025. The cuts fueled S-REITs’ interest in leveraging to fund overseas acquisitions. Keppel REIT wasted no time as it announced acquisition of 75% interest in Top Ryde City Shopping Centre in Sydney. 60% of the acquisition cost would be funded by private placement and perpetual securities and the remaining 40% through AUD denominated debt.

With expectations of further US Fed rate cuts in 2026, S-REITs are widely expected to resume their asset acquisitions through borrowings again. In this article, I will share my insights on the outlook of Keppel REIT share price in 2026.

Note that this is an opinion article and not meant to be a financial advice. Please do your due diligence or engage financial advisors before investing in the stock market. Furthermore, I am not vested and have never invested in Keppel REIT before. Whether Keppel REIT share price will surge or collapse has no impact on me. Thus, this article is not meant to induce readers to make any form of investment decisions.

Momentum swing for Keppel REIT share price?

My conviction in Keppel Reit share price is based on a recent key change in the macroeconomics and that is the tight supply pipeline of Grade A offices in Singapore’s Downtown Core for the next 2 years – only Shaw Tower in Beach Road and Newport Tower in Anson Road are slated for completion in 2026 and 2027, respectively. In fact, recent 90% occupancy of IOI Central Boulevard Towers, a Grade A commercial building, reflects healthy demand for office spaces in Singapore’s CBD. The tight supply pipeline, coupled with foreseeable interest rate cuts on the horizon, has led to a “flight to quality” trend, leading to 2.5% increase in office rental in the city area. Vacancy for office rentals consequently eased to 11.2% from 11.4% in the second quarter.

Prior to COVID-19, Keppel REIT share price used to maintain at $1.10 to $1.20 price levels. Post-pandemic, Keppel REIT has been hit by the shift to work-from-home trend as office space demand tapered. However, recent positive rental reversions and increased occupancy of Keppel REIT office assets indicate that office demand is rebounding strongly and the worst may be over for Keppel REIT.

For its Singapore offices, committed occupancy for 3QFY2025 was 96.3%, a slight drop as compared to 2QFY2025. But the performance was offset by the higher rentals, which led to NPI increasing to $197.2 million.

What makes Keppel Reit stands out is it’s lack of exposure to the China market. 10 years ago, you are a big fool if you don’t have China exposure. 10 years later, you are a big fool if you have China exposure. The property boom in China has led to various global companies jumping on the bandwagon to seek a slice of the lucrative China boom. However, the consequent burst of the property bubble and trade war between China and US have caused a protracted bloodletting economic slump in China for years. Keppel Reit is a rare exception among the S-Reits with zero China exposure due to its significant concentration in Singapore and Australia commercial properties. Given MLT’s disastrous China misadventure, I am now monitoring this S-Reit and has put it in my watchlist.

According to CapitaLand Integrated Commercial Trust (CICT) Annual Report in 2023, CICT is the top player in the premium office space in Singapore, with 7.2% market share while Keppel Reit trailed at 4.1% and Suntec Reit at 3.7%. To improve it’s market share in Singapore, Keppel Reit acquired an additional one-third interest in Marina Bay Financial Centre Tower 3 (“MBFC Tower 3”) in Singapore at an agreed property value of S$1,453.0 million or approximately S$3,268 per square foot (the “Acquisition”). The agreed property value represents a discount of approximately 1.0% to the property’s independent valuation (based on the one-third interest) of S$1,467.3 million. Post completion, together with the one-third interest which Keppel REIT currently holds in MBFC Tower 3, Keppel REIT will hold in aggregate, two-third interest in MBFC Tower 3.

Massive Equity Funding Rights (EFR)

The latest EFR of $886 million would have rankled existing unitholders given that it came right after the $113 million private placement to fund the acquisition of the Sydney Mall. Obviously, these equity fundings would put pressure on the unit price. And no unitholders like falling unit prices.

However, it is important to put things into perspective. Keppel Reit’s unit price has run up so much this year to the extent that a correction is not only healthy, but also sustainable. Furthermore, the latest EFR is priced at a discount of 6.8% to its last trading price. In my opinion, the pricing is reasonable.

The situation is entirely different for MLT in which the unit price has fallen from a peak of $1.90 to the current $1.30. A massive EFR would pile misery to unitholders. At least for Keppel Reit, they are issuing the EFR from a position of strength – rising unit prices and improving market fundamentals.

I am also of the belief that the Manager have timed the acquisitions as the Fed is cutting interest rates. In fact, Singapore’s SORA has plummeted to a 3-year low. It makes sense to make acquisitions in low-interest rate environment. If the S-Reit does not make DPU-accretive acquisitions now, it would have incurred high interest costs when it acquired assets during high interest times.

Conclusion

Keppel Reit has evolved from a pure-play office Reit player when it acquired the Sydney Mall. I like this S-Reit for being one of the top three premium office players in Singapore. It’s portfolio concentration in Singapore also means that it is relatively less affected by currency fluctuations as compared to MLT.

Although the outlook may be uncertain due to the US trade tariffs, the risk is mitigated by the tight pipeline of Grade A office spaces in Downtown Core. Additionally, the $20 million anniversary dividend should provide support to the DPU.

Prior to the EFR, I had wanted to enter this counter at $1.00. In light of the EFR, I am monitoring the unit price and may take up a small position at $0.90 to $0.95. Till then, enjoy the ride.