In April 2006, Keppel REIT was spun-off from Keppel Land. What happened was Keppel Land shareholders were given one Keppel REIT share for every five they owned in Keppel Land.
Back then, Keppel REIT had a net asset value (NAV) of S$1.82 per share when it first started trading on the Singapore Exchange.
By December 2006, shares jumped from S$1.04 to S$2.50 per share. That implied a 1.37x P/B ratio and a 2.7% dividend yield.
Today, Keppel REIT’s NAV has shrunk to S$1.27 per share. Shares trade at 0.69x P/B ratio and a much higher 6.4% dividend yield.
Keppel REIT’s dividend yield looks cheap, here’s why.
What is Keppel REIT?
In 2006, Keppel REIT owned four office towers:
- Prudential Tower
- Keppel Towers
- GE Tower
- Bugis Junction Tower
Today at S$3.7 billion market cap, Keppel REIT’s property portfolio is clear – “pure-play” offices.
It has grown from just four Singapore office assets to 13 all across Asia-Pacific today, valued at ~S$9.4 billion. ~79% of its assets are in Singapore
Keppel REIT’s good 1H2025 performance
With its current properties, it reported good 1H2025 performance:
- Net property income rose 11.8% year over year to~S$108 million
- Committed occupancy rates steadied at ~96%
- Rental reversions: +12.3%
- Distributions per unit (DPU): S$ 2.72 cents, down from S$ 2.80 cents
The improvement in Keppel REIT’s results was due to its new contributions from 255 George Street, which Keppel REIT acquired in May 2024.
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Keppel REIT’s high-quality tenants drive higher rental income
Keppel REIT’s tenants are high-quality. As I peered into the financial reports, over 50% of tenants come from finance, technology, media &telecommunications and government agencies.
These are serviced-based businesses that are core to Singapore’s economy.
On top of that, Keppel REIT’s top ten tenants are solid, highly-reputable organizations – DBS Group, the State of Victoria, the Government of Western Australia, Ernst & Young and so on.
I might add there are concentration risks, since these same tenants account for over 30% of Keppel REIT’s gross rental income. Though I don’t expect a high risk of default from these high-quality tenants.
What’s more, these tenants stay with Keppel REIT for a long-term, with the office landlord having a weighted average lease expiry of nine years.
Keppel REIT’s higher debt ratio – but manageable
Keppel REIT currently has an aggregate leverage ratio of 41.7%, with ~S$4 billion in debt against S$9.6 billion in total properties.
Astute income investors will point to higher leverage, with a higher average weighted cost of debt of ~3.5% and lower interest coverage ratio of 2.6x. However, I expect the entire REIT sector to experience lower financing costs going forward.
The reason behind the decrease in borrowing costs is Fed’s expected interest rate cuts in the near future. According to CME Group, the probability of a rate cut is ~89%.
With over 60% of Keppel REIT’s debt maturing over the next three years, I believe its debt is likely to be refinanced at a lower interest rate. This should boost Keppel REIT’s overall net property income.
Keppel REIT’s biggest weakness – demand for office space
The biggest challenge today is demand for Singapore premium office spaces.
If you ask me, I think office REITs are out of fashion. Like I’ve said in my previous article here – there are growing vacancies in Singapore premium offices.
In fact, URA data shows Singapore office vacancy rates have been rising since 2023.
As firms have implemented a return to office scheme for employees, the demand for office spaces will decline over the long term and companies implement flexible working arrangements.
- Category 1 (blue line): Premium office spaces
- Category 2 (orange line): Rest of Singapore offices
While employers have been favouring “return to office”, I’m certain most companies are adopting hybrid models, which reduces demand for large office floors.
What’s more, higher vacancy rates make it tougher for Keppel REIT to negotiate higher rental rates from quality tenants.
And here’s the thing on potential risks:
Keppel REIT has over 50% of its leases expiring by 2028. Despite a portfolio WALE of 4.8 years, its Singapore portfolio WALE is actually just 2.9 years.
A shorter WALE could pose higher tenant turnover and higher leasing costs. Not good for any landlords.
But the real issue is this: Despite Keppel REIT’s high-quality assets, its DPU has been falling over the last couple of years. This was previously also due to higher interest rates.
When looking for stable dividend stocks, DPU should be rising or at least flat – rather than declining.
My final thoughts
At a ~0.69xP/B ratio, Keppel REIT’s assets are trading at a discount to its current share price. At first glance, valuations look attractive.
What’s more, its current 6.4% dividend yield appeals to the long-term dividend investor.
My take is, Keppel REIT’s assets are no doubt strong. But its story sits in a grey zone – challenges from shifting office demand and struggling DPU over the last couple of years.
If you believe vacancies still stabilize and rents to maintain in Singapore’s premium office sector, this could be a potential contrarian income opportunity.
Why did the nav drop over the years? That’s a big big negatives, for any long term investment.
Hi Blackwolf,
It’s NAV dropped last year largely because of higher debt and higher borrowing costs.
Hope this helps!
Cheers,
Willie