Don’t count on a Keppel REIT turnaround soon, says Moody’s

Declining rental income is a thorn in its side.

A reversal might be farther than expected for Keppel REIT, as declining rental income support and soft market conditions in the city-state weigh on its rental pricing power and earnings.

According to Rachel Chua, an analyst from Moody’s, underlying rental income is not expected to increase to sufficiently compensate for the decline in income support levels since 2014 under the current challenging market conditions.

“Income support at Keppel REIT decreased to SGD20 million in 2015 from SGD68 million in 2013. Going forward, rental support will reduce over the next three years before falling away completely,” Chua said.

Additionally, she added that the support arrangement at Marina Bay Financial Centre (MBFC) Phase 1 was exhausted in 2014 while those at Ocean Financial Centre and MBFC Tower 3 will cease in 2017 and 2019 respectively.

Meanwhile, she said the weakness in the firm’s financial profile is partially balanced by the trust’s portfolio of high-quality and strategically-located office assets in the prime central business districts of Singapore and Australia.