Broker: OCBC Investment Research
Date of Report: 30 July 2025

Keppel REIT 2025 Analysis: Performance Review, Valuation & Outlook

Introduction: In-Line Results Amid Market Challenges

Keppel REIT (KREIT), a leading Singapore-listed office real estate investment trust (REIT), has reported its 1H25 results, featuring a slight dip in distribution per unit (DPU) and steady operational momentum. This comprehensive review delves into KREIT’s latest performance, portfolio dynamics, financial health, and an in-depth comparative analysis with other major S-REITs. The report also highlights environmental, social, and governance (ESG) progress, risks, and potential catalysts for investors.

Investment Thesis: Defending Yields in a Dynamic Market

• KREIT is a pure-play office S-REIT with a diversified portfolio of Grade A commercial assets across Singapore, Australia, South Korea, and Japan.
• Assets under management have grown to approximately SGD9.4 billion across 13 assets as of 30 June 2025.
• Management continues to optimize the portfolio through strategic acquisitions and divestments, aiming for higher yields.
• KREIT will distribute SGD100 million from accumulated capital gains (SGD20 million per annum).
• Singapore’s core CBD Grade A office market showed modest rental growth in 1H25, supported by low supply and resilient demand.

Financial Highlights: Stable Income, Cost Pressures

• 1H25 DPU fell 2.9% year-on-year to 2.72 Singapore cents, but results were in line with expectations.
• Property income and net property income (NPI) rose by 9.1% and 11.8% YoY to SGD136.5m and SGD108.3m, respectively.
• NPI attributable to unitholders increased by 13.4% YoY to SGD98.9m.
• Higher borrowing costs (+12.1% YoY to SGD46.3m) and a shift to 75% of management fees being paid in units (from 100% in 1H24) contributed to the DPU decline.
• If management fees had remained fully in units, 1H25 DPU would have risen 3.7% YoY to 2.90 Singapore cents.
• 1H25 DPU accounted for 49.7% of the initial FY25 forecast.

Key Financial Summary Table

• DPU yield is projected at 5.8% for FY25E and 5.9% for FY26E.
• Price-to-Net Asset Value (P/NAV) expected at 0.8x for FY25E and FY26E.
• Aggregate leverage remains above 41%.

Operational Performance: Leasing Momentum and Portfolio Trends

• Portfolio rental reversions accelerated from 10.6% in 1Q25 to 12.3% in 1H25.
• Singapore delivered positive rental reversions of 11.8% in 1H25.
• T Tower in Seoul achieved rental uplifts in excess of 30%.
• Australia saw two leases with rental reversions above 20% and 25%, respectively.
• Average signing rents for Singapore office leases reached SGD12.77 psf pm in 2Q25, compared to SGD12.10 psf pm market average.
• Portfolio committed occupancy edged down 0.1ppt QoQ to 95.9%.
• Singapore’s committed occupancy rose 0.1ppt to 96.9%, was flat at 98.7% for North Asia, and declined 0.3ppt to 93.9% in Australia.

Capital Management: Leverage and Debt Profile

• Aggregate leverage ratio decreased from 42.1% (as at 31 Mar 2025) to 41.7%.
• Weighted average cost of debt held steady at 3.51%, with 63% of borrowings on fixed rates.
• All-in interest rate was stable QoQ at 3.51%.
• Expectations for lower average debt cost in 2H25 due to a dip in SORA.
• Recently secured a long-term loan with a reduced margin in the 60bps range.
• Inorganic growth opportunities remain limited, as leverage is above 40% and units trade below NAV.

ESG Achievements and Areas for Improvement

• KREIT’s ESG rating was upgraded in December 2021, driven by improved governance and the inclusion of the Corporate Behaviour Theme.
• Strong ethical business conduct and whistle-blower protection mechanisms highlighted.
• 90% of the portfolio is compliant with green building standards, outperforming the industry average of 38% in 2020.
• All Singapore office assets have Building and Construction Authority (BCA) Green Mark Platinum certification.
• Half of total borrowings are green.
• All operational properties are green certified, with T Tower in Seoul achieving LEED Platinum Certification.
• Talent pool development remains an area for further policy and program enhancement.

Valuation and Peer Comparison: How Does KREIT Stack Up?

KREIT’s valuation metrics position it as a relatively attractive yield play within the S-REIT landscape, but with limited upside based on current price levels. Below is a summary of key valuation metrics for KREIT and its major listed peers:

Key Catalysts and Investment Risks for Keppel REIT

Potential Catalysts

• Tighter-than-expected office supply could drive higher rental reversions.
• Stronger demand for office space, especially from financial institutions seeking expansion.
• Faster-than-expected interest rate cuts by the Federal Reserve, potentially lowering borrowing costs.

Investment Risks

• A faster-than-expected slowdown in macroeconomic conditions may dampen business sentiment.
• Persistently high interest rates could increase refinancing costs for maturing debt.
• Currency exposure from assets in Australia, South Korea, and Japan.

Company Overview & Portfolio Breakdown

Keppel REIT, listed since April 2006, is among Asia’s premier REITs, focusing on prime commercial assets in key Asia Pacific business districts. The portfolio includes properties in Singapore, Australia (Sydney, Melbourne, Perth), Seoul, and Tokyo, managed by Keppel REIT Management Limited and sponsored by Keppel.

Geographical Revenue and Income Breakdown (FY24)

• Property income: Singapore (58.6%), Australia (34.1%), South Korea (6.3%), Japan (1.1%)
• Net property income: Singapore (60.0%), Australia (32.7%), South Korea (6.3%), Japan (1.0%)

DPU and Leverage Trends

Comprehensive Financials: Income Statement & Ratios

Profitability & Credit Ratios

• Return on Common Equity (FY24): 1.89%
• Return on Assets (FY24): 1.55%
• Operating Margin (FY24): 50.06%
• Net Income Margin (FY24): 37.84%
• Total Debt/EBIT (FY24): 18.17
• Net Debt/Equity (FY24): 0.58

Conclusion: Outlook and Final Rating

KREIT remains a resilient yield play with a robust, well-diversified Asia Pacific office portfolio and solid ESG credentials. However, with leverage above 40% and the REIT trading below NAV, further inorganic growth is challenging. OCBC Investment Research has set a fair value estimate of SGD0.95 and assigned a HOLD rating, reflecting limited total return potential in the near term.

Investors should monitor macroeconomic conditions, interest rate trends, and leasing momentum in the Singapore CBD market for future performance triggers. KREIT’s ongoing focus on sustainability and prudent capital management supports its long-term stability in a competitive landscape.