Moody’s lowers Keppel REIT

Moody’s Investors Service said it downgraded Keppel REIT’s issuer rating to Baa3 from Baa2.

The outlook is stable.

The downgrade reflects a view that Keppel REIT’s weakened financial profile will not materially improve over the next two to three years as declining rental income support and soft market conditions in Singapore weigh on its rental pricing power and earnings, Moody’s said.

The agency said it does not expect underlying rental income to increase sufficiently enough to compensate for the decline in income support levels since 2014 under the current challenging market conditions.

Income support at Keppel REIT decreased to S$20 million in 2015 from S$68 million in 2013, Moody’s said.

Going forward, rental support will reduce over the next three years before falling away completely, the agency added.

In the absence of a substantial debt-reduction exercise, Moody’s said it expects the company’s adjusted net debt-to-EBITDA will remain elevated at 14x to 14.5x over the next three years.

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