Keppel REIT's Q4 net property income slumps 9.6% to $31.4m

Blame it on the divestment of 77 King Street in Sydney.

The past year had been difficult for Keppel REIT as it posted a 9.6% decline in net property income to $31.4m in 4Q16. This came as its property income declined to $40m, down from $42.8m.

"2016 was a difficult year for the Singapore office market given the oncoming supply of office space and aggressive leasing efforts from newly completed buildings. In navigating the challenging environment, the Manager continued its proactive approach to renew and forward renew leases to retain tenants and mitigate leasing risk," the group said.

For the whole year, Keppel REIT achieved a distributable income of $208.1m, which included one-off income of approximately $10m. This was lower compared to the $217.3m recorded a year earlier. The group said this is due mainly to the absence of the contribution from 77 King Street in Sydney, which was divested in 1Q 2016, and lower contribution from Bugis Junction Towers. Property income and net property income for FY 2016 also declined correspondingly by 5.3% and 6.6% YoY respectively.

"The Manager is declaring a DPU of 1.48 cents for 4Q 2016. There is no distribution of other gains for this quarter. This brings total DPU to 6.37 cents for 2016, and translates to a yield of 6.2%, based on the market closing price per unit of $1.02 as at 31 December 2016," Keppel REIT said.

Looking ahead, Keppel REIT expects the challenging global economic environment to have a continued dampening effect on the Singapore office leasing market especially this year.

"While Keppel REIT’s portfolio of quality assets and its high committed occupancy as at end-2016 will help the REIT weather the supply and demand imbalance in the office sector, Keppel REIT’s rental income is not immune to the general decline in rents in the Singapore office market," the group said.

It added, "On the capital management front, the rising interest rate environment will see borrowing costs gradually increase as the US Federal Reserve seeks rate normalisation in the longer term. At its December 2016 meeting, interest rates were raised by 25 basis points, with more rate hikes anticipated in 2017. To manage volatility in interest rates, the Manager continued its prudent approach, with fixed-rate loans at 75% of total borrowings as at end-2016."