Introduction to Keppel REIT
Keppel REIT, a prominent player in the real estate sector, specializes in high-quality, income-producing commercial properties across the Asia-Pacific region. With an impressive portfolio valued at SGD 9 billion, their holdings predominantly consist of premium Grade A office buildings in prime business districts across Singapore, Australia, South Korea, and Japan.
With a current share price of SGD 0.86 and a target price of SGD 1.06, Keppel REIT offers an attractive upside of 23.2%. The company’s robust portfolio and strategic acquisitions position it as a key player in the commercial real estate space.
Performance Highlights for 2H24
Keppel REIT recorded notable contributions from its new developments, including the recently completed 2 Blue Street in North Sydney and the newly acquired 255 George Street in Sydney’s Central Business District (CBD). However, elevated borrowing costs offset these gains. The company’s new CEO, Chua Hsien Yang, officially took the helm on January 1, 2025, marking a new chapter in leadership.
Management implemented a significant policy change by electing to receive 75% of management fees through new units starting in 2025, down from 100% previously. This strategic shift aims to reduce future dilution. Keppel REIT offers a competitive projected distribution yield of 6.6% for 2025, higher than peers like CICT (5.5%) and Suntec (5.2%). The company is currently trading at a price-to-net-asset-value (P/NAV) ratio of 0.69x.
Detailed Financial Analysis
Keppel REIT reported a 2H24 distributable income of SGD 107.6 million, reflecting a slight year-on-year decline of 1.9%. The distribution per unit (DPU) for 2H24 was 2.80 Singapore cents, a drop of 3.4% year-on-year. Despite being slightly below expectations, the company demonstrated resilience through broad-based growth across its Singapore and overseas properties.
Net property income (NPI) increased by 10.7% year-on-year, supported by strong performance from assets like T Tower in Seoul, KR Ginza II in Tokyo, and the development projects in Sydney. Additionally, the company achieved a double-digit rental reversion of 16.5% in 4Q24 (13.2% for the full year 2024), with signing rents in Singapore averaging SGD 12.56 psf/month.
Committed occupancy improved to 97.9% in 4Q24, up 0.3 percentage points quarter-on-quarter. Key properties like Marina Bay Financial Centre and One Raffles Quay maintained high occupancy rates of 98.8% and 98.7%, respectively. Notably, 2 Blue Street saw a significant occupancy improvement, rising by 14.4 percentage points to 92.1% in 4Q24, driven by new tenants like Alstom and BBC Studios.
Key Financial Metrics and Forecasts
| Year |
Net Turnover (SGD million) |
EBITDA (SGD million) |
Net Profit (SGD million) |
DPU (SGD cents) |
PE Ratio |
DPU Yield (%) |
| 2023 |
233 |
120 |
171 |
5.8 |
23.5 |
6.7 |
| 2024 |
262 |
137 |
101 |
5.6 |
22.6 |
6.5 |
| 2025F |
283 |
159 |
165 |
5.7 |
20.2 |
6.6 |
The company’s gearing ratio was stable at 41.2% as of December 2024, with 69% of borrowings on fixed interest rates. However, borrowing costs rose by 34.3% year-on-year, reflecting an all-in interest rate of 3.4% in 4Q24.
Regional Outlook
Singapore
Singapore’s Grade A CBD office rents remained flat at SGD 11.95 psf in 4Q24, with demand driven by sectors like financial services, technology, and legal. The vacancy rate eased to 4.9%, and rent growth is expected to be modest at 2% in 2025.
Australia
In Australia, Sydney’s CBD is experiencing a “flight to quality” trend, with vacancy rates projected to drop from 15.5% in 2024 to 12.0% by 2029. Properties like 255 George Street and 2 Blue Street are valued below replacement costs, presenting strong investment opportunities.
Leadership and Strategic Initiatives
Keppel REIT welcomed Chua Hsien Yang as its new CEO on January 1, 2025. With over 20 years of experience in real estate fund management, Chua has held significant roles within Keppel, including CEO of Keppel DC REIT and Managing Director of Mergers & Acquisitions. Under his leadership, the company is expected to maintain its strategic focus and explore growth opportunities.
Valuation and Recommendation
Keppel REIT offers an attractive valuation with a 2025 projected distribution yield of 6.6% and a P/NAV of 0.69x. The target price of SGD 1.06 is based on the Dividend Discount Model (DDM), incorporating a cost of equity of 6.5% and a terminal growth rate of 1.5%. The company’s strong fundamentals and growth potential make it a compelling “BUY” recommendation.
