SINGAPORE (Jan 9): Keppel DC REIT was one of the best performers among the Singapore real estate investment trusts (S-REITs) in 2016, with its share price rising 18.7%.

In comparison, the benchmark ST REIT Index grew 1.9% in the year, while the ST Index dipped 0.1%.

CIMB, however, is pessimistic about KDCREIT’s prospects in 2017.

After having downgraded KDCREIT to “hold” from “add” in Dec 2016, the research house has now lowered the target price for the REIT to S$1.18, from S$1.22 previously.

“Organic portfolio weakness, a less visible acquisition pipeline (over a 12-month timeframe) and a strong Singapore dollar are reasons for pessimism on KDCREIT, in our view,” says CIMB lead analyst Yeo Zhi Bin in a Jan 6 report.

More than a quarter of KDCREIT’s rental income is up for renewal in 2017.

CIMB says it is “pencilling in more conservative assumptions”. It now assumes a 10% drop in rental reversion for KDCREIT’s Singapore lease expiry, and a 5% drop in rental reversion for its Basis Bay lease.

Meanwhile, Yeo says it has taken longer than expected to backfill the vacant Dublin 1 space, and estimates it will take two years before the occupancy rate reaches close to 75%.

In addition, Yeo says that while acquisitions have been powering KDCREIT, the acquisition pipeline for 2017 is less visible.

“We think the two assets in the right of first refusal (ROFR) pipeline – Almere 2 and SGP 4 – will not be ready for acquisition by 2017. This also means that the manager has to rely on smaller, overseas third-party deals that may not excite the market,” Yeo says.

CIMB also cut is forecasts for KDCREIT’s distribution per unit (DPU) in FY16-18F by 1.5-4.1%.

This is after taking into account the sharp depreciation of the REIT’s foreign sourced income, particularly the Malaysian ringgit and the British pound, against the Singapore dollar.

Units of Keppel DC REIT closed 2 Singapore cents lower at S$1.21 on Monday.