Keppel REIT posts disappointing Q3 results as MBFC’s rental support expires

Its DPU slipped 6% year-on-year.

Keppel REIT posted disappointing results for the third quarter, thanks mostly to the cessation of rental support at Marina Bay Financial Centre 1 and 2.

Higher borrowing costs also impacted the REIT’s Q3 results. Keppel REIT’s distribution per unit for Q3 came in at 1.85cts, representing a 6% year-on-year decline and a 3% quarter-on-quarter slip.

According to Barclays, Keppel REIT’s underlying rents have not caught up, while the loss of income from the divestment of Prudential Tower on 26 September and the still pending acquisition of MBFC Tower 3 could mean 4Q14 will also be weak.

“We reduce our DPU for 2014 by 5% to 7.57cts on the loss of Prudential Tower's contribution in 4Q14 and the shortfall at MBFC 1. We reduce our DPU by a lesser 1% for 2015 and 2% for 2016 as MBFC T3 should have started contributing,” Barclays stated in a report.

Meanwhile, OSK DMG noted that Keppel REIT’s DPU might well be on a downward trajectory as rental support for Ocean Financial Centre is also set to expire in 2017.

“All eyes are now on OFC to hit its breakeven rent, when its income support ends in 2016-2017. On top of that, we have factored in the MBFC 3 acquisition into our estimates. We impute the MBFC 3 acquisition into our estimates, assuming that it is completed in Dec 2014. We also assume a passing rent of SGD9.11 psf/month vis-à-vis the rental support break-even rent of SGD10.80 psf/month. In addition, we forecast a distribution per unit (DPU) CAGR of -3.2% over FY13-16F with the progressive expiry of income support for OFC,” stated OSK DMG.

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