Should You Invest In Keppel REIT [Fundamental Analysis]

In this article, we'll be conducting a fundamental analysis of Keppel REIT and its suitability to achieve the following investment objective: To deliver a stable dividend yield of 5% to 6% per year while having a high degree of capital preservation ability.

Information Is Accurate Up To Oct 2023

Business Description

Keppel REIT is an Office REIT that was listed in 2006 and owns 12 office properties (4 are in Singapore, 6 are in Australia and 2 in Korea/Japan).

What I Like About Keppel REIT

Very stable distribution (Fig 8)
Majority of their offices (79%) are grade-A offices in Singapore
Tenants are largely stable MNCs or Government bodies (Fig 13)
Overall portfolio’s WALE is high
Management has consistently generated yield accretive capital recycling efforts over the years

What I Do Not Like About Keppel REIT

No controlling interest (33%) in flagship properties such as MBFC and One Raffles Quay which may result in future challenges should disputes happen.
Expansion into Japan (KR Ginza II), though negligible, is questionable.

Updates From Recent Performance (Q3 2023)

General Comments:

DPU from operations experienced a decrease of -10% due to higher borrowing costs. (Cost of debt had increased from 2.29% in FY2022 to 2.85% in Q3 2023)
Overall DPU including anniversary distribution (to be distributed over five years starting from 2023 via the accumulated capital gains) only declined by 1.1% Y.O.Y

Positive Headwinds:

Contribution from KR Ginza II is starting to take effect which will further improve the top line performances from 2023 onwards.

Negative Headwinds:

Cost of Debt is expected to increase further as around 22% of their debt is due for renewal in 2024 while another 21% is due for renewal in 2025. This means that around 40% of their debt will probably be renewed at levels similar to or above the current all-in interest rate of 2.85%.

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- Work In Progress -

Daniel is a Licensed Independent Financial Consultant with MAS and a Certified Financial Planner (CFP®). Connect with me on social media platforms to receive updates on future content! You can also slide into my DMs if you have any questions :)