Keppel REIT (SGX: K71U) (“KREIT”) is acquiring an additional one-third interest in Marina Bay Financial Centre Tower 3 (“MBFC Tower 3”) in Singapore from Hongkong Land (SGX:H78) (“HKL”) at an agreed property value of S$1,453.0 million or approximately S$3,268 per square foot.
The agreed property value represents a discount of approximately 1.0% to the property’s independent valuation (based on the one-third interest) of S$1,467.3 million. Post completion, together with the one-third interest which Keppel REIT currently holds in MBFC Tower 3, Keppel REIT will hold in aggregate, two-third interest in MBFC Tower 3.
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In connection with the Acquisition, Keppel REIT has launched an underwritten non renounceable preferential offering of new units in KREIT to raise gross proceeds of approximately S$886.3 million.
A non renounceable offering means the right to the preferential offering is not transferrable and cannot be sold at a price.
An underwritten offering means that should any shareholder choose not to subscribe for her allotment, the underwriter has guaranteed KREIT that it will subscribe for any unsubscribed units. Note that KREIT has not disclosed who the underwriter is, but we guess that it would likely be a financial institution instead of the Sponsor or any other existing shareholders.
Unitholders who are entitled to participate in the preferential offering will be offered 23 new units for every 100 existing units held in KREIT, at an issue price of S$0.96 per new unit. Keppel entities have all undertaken to subscribe for their share of the allotment.
Timeline
This issue price represents a discount of around 6.8% to the volume weighted average price of S$1.0301 per unit for all trades on the last traded day.
The offering is expected to open on Dec 26 and close on Jan 9. The new units are expected to be listed on Jan 19.
In all, the preferential offering is expected to be completed within a month or so.
Rationale for acquisition
KREIT views this as a rare opportunity to increase ownership in MBFC Tower 3, a Premium Grade A Office Asset with DBS a key tenant at MBFC Tower 3.
The property enjoys a high committed occupancy of approximately 99.5% as at 30 September 2025 and a weighted average lease expiry of 3.5 years.
Looking ahead, KREIT believes that the sustained demand for quality office space coupled with the absence of new office supply in the Marina Bay area will support potential rental growth and long-term capital appreciation.
Post-completion, Keppel Reit’s portfolio exposure in Singapore will increase from 75.8% to 79%. The enlarged portfolio value will rise to about S$11.2 billion. Naturally, the market cap will also likely increase.
Financials
Heres where the deal starts to break down. The transaction is dilutive both from a NAV & DPU perspective.
NAV will decrease from $1.24 to $1.18, a near 5% decrease. DPU is estimated to decrease between 3.6% and 6.4%.
Our views on Keppel REIT
The acquisition is dilutive from both a NAV & DPU perspective, which is probably a first among the blue chip REITs. As management fees have a base fee component which is typically calculated based on asset under management, we expect shareholders to raise concerns over this matter.
We also do not value the attempt to increase the market capitalisation of KREIT as it is already a large cap REIT.
There are two reasons why the acquisition is not able to be accretive:
1) KREIT is not trading at a premium to book and cannot raise equity at a premium to current value.
2) Singapore’s commercial property capitalisation rates are generally low and stable, reflecting a low-risk investment market, with prime offices around 3.0-3.5%. This means that the yield on asset is low. Even with the REIT taking on leverage, it is difficult for the property to deliver 5%+ to shareholders match up to the average yield of the REIT’s portfolio.
This is why there has been so few Singapore Grade A office property transactions by REITS in recent years.
The benefit of this transaction is that KREIT adds a strong top tier commercial property to its portfolio and its exposure to Singapore will increase. This is valuable in current times where there is a premium on safety. In this case, MBFC Tower 3 as a top tier asset in Singapore, ticks the box.
With KREIT also facing lower income on its overseas assets, increasing its SGD income would also provide more certainty. There is also expectation that the Singapore office market would continue to perform strongly.
Our views on Hongkong Land
When HKL sold MCL Land to Sunway, they said that the sale was part of HKL’s 2035 strategic vision to shift away from the residential build-to-sell segment and focus on ultra-premium commercial properties in major Asian cities. It also said that it intended to recycle capital.
Seems like HKL believes that its time to recycle its stake in MBFC Tower 3 and use these funds towards another acquisition.
Closing statements
The immediate term financial deal on the table for investors is clearly poor. Investors do not like dilutive deals that seemingly serve to merely increase the asset under management. Investors also generally do not look at the long term. Finally, Investors also do not like to be forced into a non-renounceable preferential offering.
While the preferential offering is priced tightly, only 6.8% below the last traded prices, we expect share price to fall below the preferential offering. Hence, it is the underwriters who would likely have to take on the risk should investors give the preferential offering a wide berth.
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