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RHB is reviewing its "neutral" call and a target price of S$1.05 on Keppel Reit, citing negative rental reversions and a lower portfolio occupancy.
While Keppel Reit's third-quarter results came in line with expectations, its rent reversions for the quarter turned sharply down 10 per cent despite a stabilising office market, which is a cause for concern, the broker said.
"The negative rent reversions also highlight management's leasing strategy of maintaining occupancy amid a huge incoming supply. With the recent lease renewals, Keppel Reit has minimal due for renewal in Q4 2017," RHB added.
Overall, Singapore portfolio occupancy dipped by 0.2 percentage point quarter on quarter to 99.6 per cent.
Elsewhere in Australia, construction has commenced at 311 Spencer Street, a Melbourne office tower in which Keppel Reit recently acquired a 50 per cent stake. The property comes with an average rental yield of 6.4 per cent per annum over the first 15 years.
Funding for the above acquisition will be done in tranches based on construction progress, with Keppel Reit to make an initial deposit of about A$1.1 million (S$1.17 million). Keppel Reits' current gearing stands at 38.8 per cent, and a full debt funding will push gearing to the 40 per cent level, which is close to the maximum threshold limit of 45 per cent.
"We believe in the future, management would consider all funding options, including a potential equity fund raising in order to lower the gearing," said RHB.
As at 9.46am, the counter was trading 0.84 per cent lower at S$1.185 apiece.