CGS International Securities
July 30, 2025
Keppel REIT Delivers Resilient Growth: Singapore Office Outperformance, Robust ESG, and Sector-Wide Peer Review
Introduction: Keppel REIT’s Strong 1H25 Performance and Forward Outlook
Keppel REIT (KREIT) continues to cement its reputation as a leading office REIT in Singapore and Australia, delivering robust performance in the first half of 2025. According to the latest report from CGS International Securities, KREIT reported a solid 1H25 distribution per unit (DPU) of 2.72 Singapore cents, matching 50.2% of the full-year forecast. The REIT’s focus on double-digit positive rental reversions, portfolio optimization, and sustainability initiatives remain at the core of its strategy.
Financial Highlights: Growth Amidst Headwinds
- 1H25 Revenue: S\$136.5 million, up 9.1% year-on-year, attributed to contributions from 255 George St, higher occupancy at 2 Blue St (Australia), and positive rental reversions.
- Net Property Income (NPI): S\$108.3 million, up 11.8% year-on-year.
- Distribution Income: S\$105.5 million, down 1.3% due to 25% of management fees being paid in cash instead of units.
- Portfolio Occupancy: Stable at 95.9% as of end-1H25.
- Rental Reversions: Averaged +12.3% in 1H25; average signing rents for Singapore leases reached S\$12.77 psf/month.
Portfolio Dynamics: Leasing Activity and Rental Trends
- In 1H25, approximately 559,000 sq ft of space was leased or renewed (up from 260,000 sq ft in 1Q25).
- Leasing demand spanned banking, insurance, financial services, TMT, real estate, manufacturing, and distribution sectors.
- Management targets double-digit rental reversions for FY25, with low average expiring rents (S\$11.37–12.12 psf for Singapore leases in 2H25F and FY26F).
- Only 2.8% of leases are due for renewal/review in 2H25F, and 19.4% in FY26F.
Capital Management and Funding Outlook
- Aggregate Leverage: 41.7% at 1H25.
- Interest Cost: Slight decrease quarter-on-quarter to 3.51%.
- Interest Coverage Ratio (ICR): 2.6x.
- 63% of debt is fixed-rate, providing stability against rate fluctuations.
- Management expects funding costs have peaked, with rates expected to trend lower by end-FY25.
Financial Forecast and Valuation
- Target Price: S\$1.08 (unchanged, DDM-based).
- Current Price: S\$0.97, indicating an 11.3% upside.
- Dividend Yield: Forecast at 5.59% (Dec-25F), rising to 6.03% by Dec-27F.
- Core EPS Growth: Expected 12.3% in Dec-25F, 8.3% in Dec-26F, and 8.6% in Dec-27F.
- Price-to-Book: 0.77x (Dec-25F), 0.78x (Dec-26F).
- Recurring ROE: Projected to rise from 3.06% (Dec-24A) to 4.24% (Dec-27F).
| Financial Summary |
Dec-23A |
Dec-24A |
Dec-25F |
Dec-26F |
Dec-27F |
| Gross Property Revenue (S\$m) |
233.1 |
261.6 |
288.6 |
298.0 |
310.7 |
| Net Property Income (S\$m) |
182.4 |
201.9 |
226.5 |
233.3 |
243.1 |
| Net Profit (S\$m) |
178.0 |
108.4 |
171.7 |
187.8 |
205.9 |
| Distributable Profit (S\$m) |
218.7 |
214.5 |
210.4 |
223.8 |
231.6 |
| Core EPS (S\$) |
0.041 |
0.040 |
0.044 |
0.048 |
0.052 |
| Dividend Per Share (S\$) |
0.058 |
0.056 |
0.054 |
0.057 |
0.059 |
| Dividend Yield |
5.98% |
5.77% |
5.59% |
5.89% |
6.03% |
KREIT vs. Sector Peers: Comparative Performance Across S-REIT Sub-Sectors
Office Sector
| Company |
Ticker |
Rec. |
Price (S\$) |
Target (S\$) |
Market Cap (US\$m) |
Leverage |
P/B |
Dividend Yield FY25F |
Dividend Yield FY26F |
Dividend Yield FY27F |
| Keppel REIT |
KREIT SP |
Add |
0.97 |
1.08 |
2,912 |
41.7% |
0.80 |
5.6% |
5.9% |
6.0% |
| OUE REIT |
OUEREIT SP |
Add |
0.30 |
0.33 |
1,258 |
40.3% |
0.52 |
6.7% |
7.4% |
7.7% |
| Suntec REIT |
SUN SP |
Hold |
1.20 |
1.26 |
2,731 |
41.1% |
0.60 |
5.2% |
5.5% |
5.8% |
Industrial Sector
- AIMS AMP: 7.4–7.5% yields, P/B 1.10
- CapitaLand Ascendas REIT: 5.4–5.7% yields, P/B 1.30
- ESR-REIT: 7.7–8.1% yields, P/B 1.06
- Frasers Logistics & Commercial Trust: 6.0–6.4% yields, P/B 0.83
- Keppel DC REIT: 4.2–4.5% yields, P/B 1.51
- Mapletree Industrial Trust: 8.1–8.5% yields, P/B 1.22
- Mapletree Logistics Trust: 6.2–6.8% yields, P/B 0.94
- Stoneweg Europe Stapled Trust: 8.4–9.0% yields, P/B 0.80
Retail Sector
- CapitaLand Integrated Commercial Trust: 5.0–5.5% yields, P/B 1.07
- Frasers Centrepoint Trust: 5.4–5.7% yields, P/B 1.01
- Lendlease Global Commercial REIT: 7.0–7.2% yields, P/B 0.76
- Mapletree Pan Asia Commercial Trust: 6.1–6.5% yields, P/B 0.74
- Starhill Global REIT: 6.6–6.7% yields, P/B 0.80
Hospitality Sector
- CapitaLand Ascott Trust: 6.8–7.0% yields, P/B 0.81
- CDL Hospitality Trust: 6.2–7.6% yields, P/B 0.56
- Far East Hospitality Trust: 6.3–6.5% yields, P/B 0.66
- Frasers Hospitality Trust: 4.6–5.2% yields, P/B 1.09
Overseas-Centric and Healthcare
- CapitaLand China Trust: 7.7–8.0% yields, P/B 0.72
- Elite UK REIT: 8.8–8.9% yields, P/B 0.85
- Manulife US REIT: 41.8–48.5% yields, P/B 0.29 (notable for risk profile)
- Sasseur REIT: 9.1–9.7% yields, P/B 0.82
- Parkway Life REIT: 3.8–4.3% yields, P/B 1.67
ESG Leadership: Sustainability and Green Funding Milestones
- KREIT achieved a B LSEG ESG Combined Score for 2024, with B+ in Environmental and Social, and B- in Governance.
- Board ESG committee established to guide strategy; platinum status for Singapore assets under BCA Green Mark.
- Australian assets scored 5+ Stars in NABERS Energy ratings.
- 82% of borrowings are green loans (ahead of 50% target), with a new minimum target of 75% sustainability-focused funding from 2025.
- Environmental achievements in 2024 include a 22.5% reduction in Scopes 1 and 2 emissions, 19.5% energy use reduction, and significant progress in water savings and recycling.
- ESG scores are strongest in product responsibility (A), but there is room for improvement in environmental innovation and community/CSR strategy.
- Employee development and community outreach remain strong, with 31.8 hours of average training per employee and over 1,100 hours dedicated to outreach activities.
Key Ratios and Operational Drivers
- Net Property Income Margin: 78.5% (Dec-25F), trending around 78% through FY27.
- DPS Growth: -3.18% in Dec-25F, rebounding to 5.34% in Dec-26F.
- Gross Interest Cover: 1.71x (Dec-25F), improving to 1.91x by Dec-27F.
- Occupancy Rate: Expected to rise from 96.9% (Dec-24A) to 98.3% (Dec-26F and Dec-27F).
- Rental Rate (S\$psf): Projected to increase from S\$10.2 (Dec-24A) to S\$11.3 (Dec-27F).
Balance Sheet and Cash Flow
- Total Investments: S\$8,358 million (Dec-25F), growing to S\$8,387 million (Dec-27F).
- Total Cash and Equivalents: S\$123 million (Dec-25F), S\$160 million (Dec-27F).
- Gross Interest Cover: 1.71x (Dec-25F), rising to 1.91x by Dec-27F.
- Free Cash Flow to Equity: S\$253.5 million (Dec-25F), S\$250.3 million (Dec-27F).
- Current Ratio: 0.19 (Dec-25F), improving to 0.23 (Dec-27F).
Risks and Catalysts
- Upside Catalysts: Increased portfolio occupancy, higher passing rents, improved capital structure.
- Downside Risks: Prolonged frictional vacancies, slow backfilling of office space, reduced office demand from hybrid work trends.
Conclusion: KREIT’s Position in a Competitive Market
Keppel REIT stands out in the Singapore office sector with resilient occupancy, leading rental reversions, and a forward-looking commitment to ESG. The REIT is positioned for further growth with a stable dividend yield, strong balance sheet, and ongoing portfolio optimization. While sector peers in industrial, retail, hospitality, and overseas-centric REITs offer varying yields and risk profiles, KREIT’s strategy and market leadership make it a compelling choice for investors seeking exposure to prime office assets in Singapore and Australia.
For those monitoring sector trends, KREIT remains a benchmark for operational excellence, sustainability, and investor returns in the REIT landscape.
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