Moody's Investors Service has upgraded Keppel REIT's debt outlook based on its expansion across Australia and Singapore in the past year.
The agency said the ratings had improved to stable following the REIT's investments in a half share of 8 Chifley Square in Sydney, 8 Exhibition Street in Melbourne and the Old Treasury building in Perth.
"The rating outlook is stable, reflecting Moody's expectation that Keppel REIT will continue to generate stable cash flows from its portfolio, driven by steady occupancy levels and positive rental reversions," Moody's said.
"Moody's also expects Keppel REIT to maintain its financial discipline when pursuing growth and to keep its credit profile within targeted parameters."
But despite the upgrade, Moody's said there were cautionary headwinds because of the weakening outlook for the office sector.
"We remain cautious on Keppel REIT's continued expansion into the Australian office market due to growing headwinds from negative pressure on white-collar employment in Australia, which has resulted in rising vacancy rates.
"Nonetheless, the trust's exposure to Australia post-acquisition of 8 Exhibition Street is less than 15 per cent of its total investment property value, and provides diversification." It said Keppel's Australian properties had high occupancy rates and long-weighted lease expiries of about 12 years.
Office landlords warn that incentives are rising in rental contracts to entice tenants as the national vacancy rate is forecast to move above 10 per cent.