Here are 3 biggest risks to Keppel REIT's investment growth

Forex exposure is one.

OSK outlines three possible investment risks that may hamper Keppel REIT's investment growth. This includes the company's huge market in Singapore's office sector, forex exposure, and interest rate risks.

Here's more from OSK:

Singapore office sector

With 89% of KREIT’s FY13F net property income (including associate contribution) and 86% of the Trust’s assets value originating from Singapore, the office sector outlook will directly impact its earnings and, consequently, its share price performance.

However, as we have explained in the previous section, we are bullish on the prospects of a sustained turnaround in Grade-A office rental, which can only  benefit the likes of KREIT.

Forex exposure

An estimated 11% of KREIT’s FY13F earnings are derived from its five Australian properties, one of which will only come on stream in 2015.

As the Trust hedges its AUD on a rolling 6-12 month basis, this lessens the devaluation impact of its Australian contribution, but it will – nevertheless – suffer forex losses upon a rollover.

We have left out the Australian commercial office sector in our analysis, as KREIT’s portfolio boasts of either: i) long-term contracts with rental step-ups, or ii) at least 6% guaranteed yield – significantly higher than the Australian Government’s borrowing rate of 3%.

Interest rate risks

Singapore's three-month SIBOR rate and 10-year bond yield are currently at 0.37% and 2.45% respectively. This is well below the long-term average of 1.45% (SIBOR)and 3.03% (10-year bond yield).

KREIT’s TP and earnings estimates are sensitive to volatility in the cost of capital. A scenario of rising rates will impact the stock negatively.

We have already factored in an annual 50bps increase in forward interest expenses from FY2014F to 2016F. Another potential 50bps increase in borrowing costs would impact 5% of forward net profit.