Here's why Keppel REIT's 6.3% revenue drop is not alarming

Bugis Junction Tower is now almost fully-leased.

Keppel REIT's revenue fell by 6.3% due to the divestment of 77 King Street in January and lower income from Bugis Junction Tower (BJT) after the closure of California Fitness. But management has since backfilled the majority of the vacated space with committed occupancy for BJT at a healthy 95%, said Maybank KimEng.

Keppel REIT renewed all outstanding leases for the rest of the year and lifted occupancy for its offices at Raffles Place and Marina Bay to 100%.

3Q16 capital distributions is down to SG$3m. This compares toSG$6m in 3Q 2015 and SG$5 in 2Q16.

Moving forward, Maybank thinks KREIT is well-positioned to weather the storm while noting that with just 5.2%/5.4% of leases up for renewal in FY17/18, it is less exposed to the impending weakness in Singapore’s office sector.

"Furthermore, we believe the market will continue to reward the REIT for its income stability from the long WALE of 6.1 years (vs typical leases of three
years)," it said.

Nonetheless, with average rents up for renewal over the next two years at low-SG$9 psf, it may still report slightly negative rental reversions as office rents drift lower in the year ahead.