Keppel REIT Reports Strong FY 2024 Results: 12.2% Growth in Property Income

Keppel REIT Analysis: Net Profit Growth of 11.7% in FY 2024

Business Description

Keppel REIT is a Singapore-based real estate investment trust (REIT) focused on owning, managing, and investing in commercial properties across the Asia-Pacific region. Its portfolio, valued at \$9.5 billion as of 31 December 2024, spans Singapore (77.9%), Australia (18.3%), South Korea (2.9%), and Japan (0.9%). The company’s assets are primarily premium-grade office spaces located in prime CBD areas, including Ocean Financial Centre, Marina Bay Financial Centre, and One Raffles Quay in Singapore, as well as notable properties in Sydney, Melbourne, Perth, Seoul, and Tokyo.

Keppel REIT’s competitive advantage lies in its high-quality portfolio, proactive leasing strategy, and focus on sustainability, with 82% of borrowings linked to green financing and 100% of properties (excluding one undergoing certification) being green-certified. Its primary competitors include other REITs such as CapitaLand Integrated Commercial Trust and Mapletree Commercial Trust. The REIT’s market share is strengthened by its diversified tenant base of 489 tenants, including blue-chip corporations in banking, technology, and government sectors.

Revenue Streams and Customer Base

Keppel REIT generates revenue primarily from rental income from its office properties. Its tenants are diversified across sectors, with the top contributors being banking and financial services (34.9%), technology, media, and telecommunications (14.0%), and government agencies (13.3%). The REIT maintains a high committed portfolio occupancy rate of 97.9%, with a long weighted average lease expiry (WALE) of 4.7 years, which provides income stability.

Financial Statement Analysis

Income Statement

Property Income: Increased by 12.2% year-over-year to \$261.6 million in FY 2024, driven by better performance at key properties and contributions from newly acquired assets.
Net Property Income (NPI): Increased by 10.7% year-over-year to \$201.9 million.
Net Profit Growth: NPI attributable to unitholders grew by 11.7% to \$182.9 million.
Distribution Per Unit (DPU): Declined by 3.4% to 5.60 cents due to higher borrowing costs.

Balance Sheet

Total Assets: Increased by 2.4% to \$8,458 million as of 31 December 2024.
Aggregate Leverage: 41.2%, with 69% of borrowings on fixed rates, maintaining a stable financial position.
Adjusted NAV per Unit: Declined by 3.9% to \$1.24 per unit.

Cash Flow Statement

Details on cash flow were not explicitly provided in the report. However, borrowing costs increased due to acquisitions and refinancing at market rates.

Dividend Information

Keppel REIT distributed a total DPU of 5.60 cents for FY 2024, a 3.4% decline year-over-year. It also continued its \$20 million Anniversary Distribution initiative, which will run through FY 2025.

Key Strengths

High Portfolio Occupancy: Maintained a strong occupancy rate of 97.9% with significant tenant retention.
Sustainability Focus: 82% of borrowings are tied to green financing, and 7 properties are fully powered by renewable energy.
Diversified Tenant Base: Blue-chip tenants from various sectors provide income stability.
Geographic Diversification: Exposure to multiple high-growth markets in Asia-Pacific mitigates risks.

Risks

Higher Borrowing Costs: Borrowing costs increased by 32.2% year-over-year to \$88.5 million.
DPU Decline: Reduced distribution to unitholders may impact investor sentiment.
Valuation Declines in Australia: Australian portfolio valuation dropped by 4.1%, primarily due to exchange rate fluctuations and market conditions.

Special Activities to Improve Profitability

Keppel REIT has undertaken asset enhancement initiatives (AEIs) at One Raffles Quay, including the addition of new F&B outlets and refreshed infrastructure. The company also focuses on refinancing its borrowings and enhancing sustainability to reduce costs and attract quality tenants.

Investment Recommendations

For Current Investors:

Investors currently holding Keppel REIT should hold their position. The REIT demonstrates strong operational performance with robust property income growth and high occupancy levels. However, they should monitor borrowing costs and DPU trends closely.

For Potential Investors:

Investors not currently holding Keppel REIT should consider investing cautiously, especially if they are seeking exposure to high-quality commercial properties in Asia-Pacific and are aligned with Keppel REIT’s sustainability focus. However, they should weigh the risks of rising borrowing costs and declining DPU.

Disclaimer

The above recommendation is based on the FY 2024 financial report dated 27 January 2025. Past performance is not indicative of future results, and investors are advised to conduct their own due diligence and consult a financial advisor before making investment decisions.