Keppel Reit’s equity fundraising exercise may dilute DPU despite improved Q1 earnings: analysts 

[SINGAPORE] Analysts were mixed on the outlook for Keppel Real Estate Investment Trust (Reit) despite improvements in its first-quarter earnings, as they flagged the dilutive impact of its recent equity fundraising exercise on distribution per unit (DPU). 

CGS International Securities Singapore (CGSI) on Tuesday (Apr 21) trimmed its target price for the locally listed Reit by 9.2 per cent to S$1.09 from S$1.20 previously, but maintained its “add” call.

DBS, meanwhile, kept its S$1.05 target price and “buy” call unchanged. 

In contrast, RHB on Wednesday raised its target price by 1 per cent to S$0.99 from S$0.98, and reiterated “neutral” on the stock.

The divided views come after Keppel Reit on Tuesday posted a 19.7 per cent rise in distributable income from operations for its Q1 ended March.

This was amid higher property income due to contributions from Top Ryde City Shopping Centre in Sydney, Australia – the freehold retail mall is the trust’s maiden purchase of a pure-play retail asset – and higher occupancy at Ocean Financial Centre in Singapore.

CGSI analyst Lock Mun Yee said the reduced target price accounts for lower DPU forecasts for the financial years 2026 to 2028, which the brokerage cut by 11.7 to 14.6 per cent.

This is considering Keppel Reit’s dual acquisitions of Top Ryde City Shopping Centre and Marina Bay Financial Centre (MBFC) Tower 3, alongside the corresponding equity fundraising exercise, she added.

Observers had earlier warned that the Reit’s S$1.45 billion purchase of an additional one-third stake in MBFC Tower 3, as well as the fundraising exercise to finance it, would likely have a dilutive impact on DPU. 

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The trust’s manager on Dec 11, 2025, announced the acquisition and launched an underwritten, non-renounceable preferential offering of new units at S$0.96 apiece, to raise gross proceeds of around S$886.3 million.

Tailwinds ahead

Conversely, RHB lifted its DPU projections by 1 per cent and 2 per cent for FY2026 and FY2027, respectively. This was despite its analyst Vijay Natarajan noting that the “dilutive DPU impact” from the equity fundraising exercise remains a “key concern”.

Although Keppel Reit’s Q1 indicative DPU is down by around 8 per cent on the year – which Natarajan attributes primarily to the “dilutive equity issuance” – he pointed out that higher rents and lower financing costs nonetheless present tailwinds.

He said the Reit’s weighted average cost of debt fell 25 basis points on the quarter to 3.16 per cent a year, and is expected to hover at these levels throughout FY2026.

Moreover, rental reversions are expected to remain in the high single-digits for FY2026, supported by tight office demand-supply dynamics in Singapore’s core Central Business District, he added.

“Portfolio occupancy rose 0.4 percentage point quarter on quarter to 97.1 per cent, driven mainly by occupancy increases across Singapore assets, with demand stemming from the banking, insurance and financial services segment,” he noted.

Portfolio rent reversions for Q1 also “surprised on upside” with a 17.2 per cent rise, the analyst added, as the Singapore portfolio registered around 10 per cent of positive rental reversions, while a replacement tenant in Australia agreed to a “(significantly) higher rent”. 

Similarly, DBS Group Research analyst Dale Lai said that continued positive rental reversions present the “strongest near-term catalyst” for Keppel Reit. These, alongside savings in financing costs, could be “key earnings drivers going forward”. 

He noted that the Reit signed rents at an average price of S$13.26 per square foot per month (psf pm) in Q1 – “well above”, or around 10.7 per cent higher than, the average rent of leases expiring in FY2026 at S$11.98 psf pm.

DBS Group Research is also looking forward to the tax transparency status for MBFC Tower 3. This could result in annual savings of between S$8 million and S$10 million, expected to be recorded in H1 2026, said Lai. 

As the Reit’s leverage is “manageable”, he predicts that capital management will remain stable and borrowing costs will improve further. 

Units of Keppel Reit closed Wednesday 1.6 per cent or S$0.015 lower at S$0.895.