Keppel REIT slammed with falling rents as oversupply worsens

Its DPU dipped by 6.4% in 2Q.

The real estate investment trust is having a hard time leasing its spaces as it has a small amount of office leases due to expire in the near term with only 0.6%/9.5%/5.5%up for renewal in 2H16/2017/2018.

According to a report by Maybank Kim Eng, as these leases up for renewal have fairly low underlying rents of between mid SGD8 to low-SGD9 psf, the firm could still achieve positive rental reversions in the near term unless market conditions deteriorate significantly.

“Nonetheless, we remain cautious over its longer-term outlook as downside risks remain given the looming office oversupply,” Maybank Kim Eng said.

Meanwhile, the decline in Keppel REIT’s DPU is due to absence of contribution from 77 King Street, which was divested earlier this year.

“Overall occupancy remains high at 99.7% with signing rents down by a modest 1.9% QoQ to SGD10.10 psf. It managed to achieve positive rental reversion of 2% for 1H16. The REIT distributed proceeds from divested properties for the fourth consecutive quarter. The non-core distribution of SGD5m accounted for 9.5% of total distributable income of SGD52.5m this quarter,” Maybank Kim Eng noted.