In his Jan 2 note, he maintained his “neutral” call on Keppel REIT but cut his target price to 98 cents from $1.05. Investors seeking Singapore office exposure may want to consider Suntec REIT instead, he says.
With the deal completed, Keppel REIT now holds a two-thirds stake in the tower. The remaining one-third stake is held by DBS Bank, the tower’s anchor tenant. Natarajan says the $1.453 billion acquisition price Keppel REIT paid to the seller, Hongkong Land, represents a “hefty 4.7% premium” over its carrying value as of December 2024. He adds that MBFC Tower 3’s net property income yield of around 3.5% at the acquisition price is on the lower side.
In his note, Natarajan notes potential upside from rental reversion, as MBFC Tower 3’s current monthly average passing rent of $12 per sq ft is 10% below the average signing rents.
After stripping out the effects of anniversary distributions at $20 million per annum and assuming complete tax transparency and funding costs of 3.3% per annum, Natarajan says Keppel REIT will have a pro-forma FY2024 DPU dilution of –6.4%.
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“Assuming a potential refinancing of incremental debt at around 2.2% pa, this will result in DPU dilution of –3.6%,” Natarajan writes. Keppel REIT will assume the existing debt on MBFC Tower 3, which is not due for refinancing for the next few years.
On Dec 26, Keppel REIT launched an $886.3 million preferential offering to help finance the acquisition. Keppel REIT says it will fund the acquisition with an equity bridge loan (EBL) first and that the net proceeds from the offering will be used to repay the loan.
Keppel REIT is issuing over 923 million new units as part of the offering. Entitled unitholders will be offered 23 new units at an issue price of 96 cents each for every 100 existing units. The preferential offering will close on Jan 9, and the new units will commence trading on Jan 19.
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“As the new shares are issued at about 23% below book value, the transaction will dilute NAV by –5%. Gearing (post-acquisition) is expected to be at 41.9%, which is slightly on the higher side,” Natarajan says of the preferential offering.
Natarajan says he is lowering his FY26 and FY27 DPU forecasts by 8% and 9%, respectively, after accounting for the acquisition, the preferential offering, the issuance of perpetual securities, and debt funding costs.
In their Dec 10, 2025, note, JP Morgan’s analysts, Terence Khi and Mervin Song, write: “Client concerns are centred on the dilutive transaction, although we see longer term benefits of the rare premium Grade A Singapore acquisition, with DPU recovery in 2027.”
Song and Khi maintain their overweight recommendation but lower the December price target to $1.10 from $1.18 prior to the announcement.
Similarly, Jonathan Koh of UOB Kay Hian has lowered his target price from $1.20 to $1.12. Nonetheless, he still likes this counter for its attractive 2026 distribution yield of 5.6%. In contrast, CapitaLand Integrated Commercial Trust and Suntec REIT yield 4.9% and 5.1%, respectively.
In a dialogue session with the Securities Investors Association (Singapore) on Dec 30, the CEO of Keppel REIT’s manager, Chua Hsien Yang, acknowledged that while the “deal will not be immediately DPU accretive,” MBFC Tower 3 remains a “strategic acquisition” for them.
“As at 3Q2025, the signing rent is already higher than the passing rent level required for the acquisition to be DPU neutral (assuming an asset level interest rate of 2.2% per annum) but below the average Marina Bay rent. Over time, as and when the leases come up for renewal, we will be able to renew them at a higher rate,” Chua says.
In fact, Chua says he would have wanted to increase Keppel REIT’s Singapore office exposure, for example, by exercising the pre-emptive offers for MBFC Tower 1, Tower 2, and One Raffles Quay. Hongkong Land plans to transfer those assets to its new Singapore Central Private Real Estate Fund upon the expiration of the right of first refusal.
“We could not have acquired any more than MBFC Tower 3,” Chua says. “With just this acquisition, it will bring our pro forma aggregate leverage up to 49.9% with the EBL, which is just below MAS’s limit of 50%. As much as we would have liked, as these are good assets, we could not acquire more.”
