Keppel REIT’s money-spinner Ocean Financial Centre under threat as rental support expires

Can MBFC 3 pick up the slack?

Keppel REIT will have to rely on other properties for revenue growth as the rental support for its money-spinner Ocean Financial Centre is set to expire this year.

“We expect rental support from Keppel REIT's main revenue contributor, Ocean Financial Centre, to drop significantly in 2015. However, rental and dividend support contributions from MBFC Tower 3 and higher dividend support from two Australian properties should partially offset the lower rental support from
Ocean Financial Centre,” Standard & Poor’s stated in a report.

S&P added that Keppel REIT is not expected to materially deleverage or improve its financial strength within the next 12-24 months given the REIT manager's willingness to operate near the top end of its financial policy range.

“We anticipate that Keppel REIT's ratio of funds from operations (FFO) to debt will fall to 6.6%-6.8% in 2016, from 7.0% in 2014. This is because Keppel REIT's partially debt-funded acquisition of its stake in MBFC Tower 3 increased its leverage to 43.3% as of Dec. 31, 2014, from 42.1% as of Dec. 31, 2013. We note that Keppel REIT has historically been making sizable debt-funded acquisitions since its listing in 2006,” noted S&P.

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