Keppel DC Reit, Keppel Reit among top picks in re-rating of S-Reits by UOBKH

[SINGAPORE] UOB Kay Hian (UOBKH) analyst Jonathan Koh has kept an “overweight” rating on Singapore-listed real estate investment trusts (S-Reits) in his Thursday (Nov 27) report, following the release of their third quarter FY2025 results.

Of the 16 large cap S-Reits under his coverage, results from 12 met expectations, said Koh.

Among his top picks were Keppel DC Reit and Keppel Reit , with a “buy” rating on target prices of S$2.65 and S$1.20, respectively.

The analyst’s three other top S-Reit picks with the same call were Lendlease Global Commercial Reit (LReit) , CapitaLand Ascendas Reit and CapitaLand Ascott Trust . He has assigned target prices of S$0.81, S$4.02 and S$1.56 to the counters, respectively.

On a broader level, Koh noted that the overall positive S-Reit performance comes on the back of safe haven liquidity which continues to flow to Singapore. The inflow has pushed the Singapore Overnight Rate Average on an overnight basis to a low of 1.08 per cent.

He said that S-Reits stand to benefit as the cost of debt has peaked and will now gradually decline, particularly after the Fed cut rates by another 25 basis points to 3.75 per cent in their meeting on Oct 29.

“We observed significant reduction in average cost of debt for Keppel DC Reit and LReit by 0.4 and 0.7 percentage points, respectively,” the analyst added.

Office, retail S-Reits display strong showing in Q3

The retail portfolio of one of Koh’s top picks, LReit, achieved a strong positive rental reversion of 8.9 per cent and high occupancy of 99.6 per cent for Q1 FY2026.

“Occupancy for Sky Complex rose 6.9 percentage points quarter on quarter to 88.5 per cent as of Sep 25, paving the way for the eventual divestment. The acquisition of a 70 per cent stake in PLQ Mall is also aligned with LReit’s strategic focus on Singapore, which expands to 89 per cent of its total assets,” the analyst said.

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This is also in light of how domestic consumption in Singapore has been boosted by the influx of Community Development Council and SG60 vouchers, he added.

As for office Reits, Keppel Reit has backfilled 73 per cent of space returned by BNP Paribas at Ocean Financial Centre, and achieved “strong double-digit rental reversion” for new tenants from financial services; legal; and technology, media and telco sectors.

It also bought its first retail asset in Sydney for A$393.8 million (S$334.8 million) in October.

“The Reit intends to remain Singapore-centric and office-focused, and will cap the exposure to retail assets at 20 per cent of portfolio valuation,” Koh noted.

In the diversified industrial category, CapitaLand Ascendas Reit has upgraded its guidance for positive rental reversion from mid single-digit to low double-digits for 2025.

The Reit completed the redevelopment of 5 Toh Guan Road East into a six-storey ramp-up logistics facility during the quarter, noted the analyst. It has four ongoing development and redevelopment projects in Singapore, the US and UK totalling S$717 million as well.

“We expect to see a pick-up in strong rental reversions for logistics properties in the fourth quarter of 2025,” said Koh.

Hospitality S-Reits stick out with ‘market weight’ call

Performance by the aforementioned Reits contributed to the analyst’s “overweight” rating for office, retail and logistics S-Reits. His call on hospitality S-Reits, however, was at “market weight.”

This was largely due to tax adjustments Reits faced and Formula 1 being held in October, which affected the year on year comparison, he said.

For example, CapitaLand Ascott Trust incurred a one-off land tax adjustment of A$4.1 million related to Pullman and Mercure Brisbane King George Square in Australia.

That said, its portfolio revenue per available unit expanded 3 per cent year on year to S$163 in the third quarter of 2025, supported by a 4 percentage point year-on-year improvement in average occupancy to 83 per cent.

Room rates for Far East Hospitality Trust ’s hotels fell 5.4 per cent year on year to S$171 in Q3 with F1 in October, which resulted in revenue per average room declining 4.3 per cent year on year.

“But occupancy rebounded quarter on quarter and was seasonally higher at 86.5 per cent in Q3, while the acquisition of Four Points by Sheraton Nagoya was completed on Apr 25 and contributed revenue of S$2.7 million in the same quarter,” Koh noted.

Data centre S-Reits show mixed results

While Koh has an “overweight” rating on data centre S-Reits, he acknowledges how the data centre front reflects “tight vacancy” in Singapore due to limited supply.

This is in light of how Mapletree Industrial Trust’s (MIT) net property income declined 7.8 per cent on the year in Q2 FY2026, due to the divestment of three Singapore properties and lower contributions from its North American portfolio.

MIT was among the S-Reits which missed the analyst’s expectations.

“The trust is undertaking a strategic divestment of its North American portfolio and could potentially dispose of data centres worth S$500 million to S$600 million over the next two years,” the analyst noted. He has a “hold” rating on the counter with a target price of S$2.22.

On the other hand, Keppel DC Reit clocked a positive rental reversion of 10 per cent in Q3, driven mainly by lease renewals in Dublin.

It also plans to invest S$53.9 million to fit-out half a floor at SGP8 – a new-generation artificial intelligence-ready hyperscale data centre – to build one data centre hall, which increases the centre’s revenue contribution by 15 per cent, upon completion in Q3 of 2027.

‘Laggard’ S-Reits a buy

On a whole, the UOBKH analyst is positive on S-Reits in light of their “stable cash flows”, due to the long tenure of their leases, which range from three to 10 years.

He said that this allows them to provide income stability despite the highly uncertain macro environment at present.

“S-Reits have largely lagged recovery in the broader market despite support from lower domestic interest rates. As such, they are likely to gradually catch up with the broader market but are unlikely to lead the decline during a correction,” Koh said.

A sector catalyst flagged by the UOBKH analyst would be a “resilient” Singapore economy benefitting from low reciprocal tariffs, while a risk could be the limited new supply for the logistics and retail segments in the city-state.