After the S$1.45 billion sale of its Tower 3 stake, Hongkong Land pumped its remaining MBFC interests into a new Singapore private real estate fund

 

[SINGAPORE]   Keppel Reit   : K71U -0.51% &ndash which recently bought a one-third stake in Marina Bay Financial Centre (MBFC) Tower 3 from   Hongkong Land   : H78 +1.44% for S$1.45 billion &ndash was keen to snap up even more of the Grade-A commercial project, but was held back as its gearing neared the regulatory limit.

 

&ldquo These are good assets&hellip we could not have acquired any more than MBFC Tower 3,&rdquo said Chua Hsien Yang, CEO of the real estate investment trust&rsquo s (Reit) manager, in a Tuesday (Dec 30) dialogue with the Securities Investors Association (Singapore).

 

The acquisition brought Keppel Reit&rsquo s pro forma aggregate leverage up to 49.9 per cent, which is just below the Monetary Authority of Singapore&rsquo s limit of 50 per cent.

 

The deal will be funded with 60 per cent equity and 40 per cent debt, instead of recycled capital through divestments.

 

&ldquo If we had the benefit of time, that is something we could have done,&rdquo said Chua. &ldquo However, we had only 20 calendar days to respond to the pre-emptive offer notices. There was no way we could have sold any asset within that limited time period.&rdquo

 

He said the manager therefore &ldquo had to let the offers for MBFC Tower 1, Tower 2 and One Raffles Quay lapse&rdquo . Hongkong Land pumped these remaining assets into a new Singapore private real estate fund when the right-of-first-refusal expired. 

 

RHB analyst Vijay Natarajan was &ldquo slightly negative&rdquo on the deal. He recommended on Friday that unitholders switch to   Suntec Reit   : T82U -2.08% from Keppel Reit for office exposure.

 

Keppel Reit had previously bought one-third of MBFC Tower 3 from its sponsor Keppel. The remaining one-third is still owned by anchor tenant DBS.

 

Given its gearing ratio, the Reit is funding its latest stake purchase through an S$886 million preferential offering of over 923 million new units and 40 per cent debt. 

 

Chua said the Reit&rsquo s &ldquo focus for 2026 will be on divestments to bring down aggregate leverage&rdquo .

 

To drive yield, Keppel Reit is banking on positive rental reversions and a structural unlock of S$8 million to S$10 million in annual tax savings, following its dilutive acquisition of an additional stake in MBFC Tower 3.

 

The manager also outlined a clear road map to recover value: capturing the 10 per cent gap between the property&rsquo s passing rents and market rates, while simultaneously executing a &ldquo tax transparency&rdquo conversion to secure immediate cash-flow savings.

 

&ldquo We believe that this deal will be accretive over time,&rdquo said Chua. He cited the &ldquo rental uplift potential&rdquo from the 30 per cent of leases expiring in the next two years.

 

Chua pointed out that third-quarter signing rent in 2025 was close to the breakeven passing rent, which is &ldquo not unreachable&rdquo as the Reit has already achieved rentals above that mark. 

 

Additionally, the tax savings &ndash expected to take six months to approve &ndash will be unlocked through the Reit&rsquo s conversion of the property&rsquo s holding entity to a limited liability partnership.

 

The numbers provided by Keppel Reit&rsquo s manager indicated that if the purchase had been completed at the start of 2024, its distribution per unit (DPU) for that year would have been 6.4 per cent lower, assuming a blended debt cost of 3.3 per cent. 

 

Even with a lower blended debt cost of 2.2 per cent, the DPU would still have been 3.6 per cent lower.

 

Despite this, Chua defended the acquisition as a &ldquo highly strategic opportunity&rdquo as the property is in a market that has no new office supply coming in the next few years. 

 

With no new land to be released any time soon in the Central Business District and construction requiring at least five years, he believes the lack of new supply will support rental growth.

 

Chua said MBFC Tower 3 was prioritised for its resilience, citing the presence of DBS as a key tenant. He highlighted that the bank, a &ldquo globally recognised financial institution with an investment-grade credit rating&rdquo , provides &ldquo income security&rdquo that justifies the selection of this asset over others.

 

To address concerns regarding alignment with unitholders, the manager confirmed it would receive its management fees entirely in units. 

 

Chua also pointed out that   Keppel   : BN4 +0.19% holds about a 37 per cent stake in the Reit, ensuring the sponsor is motivated to see the unit price perform.

 

&ldquo The management team is committed to continue delivering strong dividends for investors,&rdquo he added. &ldquo There are a lot of retirees that depend on our distributions and we are conscious of this.&rdquo

The facilities contain conditions relating to changes to the Reit&rsquo s manager

 

[SINGAPORE] The manager of   Keppel Real Estate Investment Trust (Reit)   : K71U -0.51% said on Wednesday (Dec 24) that it has obtained three bridge loan facilities totalling about S$892 million through a wholly owned subsidiary. 

 

The facilities, all of which are dated Wednesday and guaranteed by HSBC Institutional Trust Services (Singapore), contain conditions relating to changes to the Reit&rsquo s manager.  

 

These include a facility for a S$300 million bridge loan, under which the borrower must &ldquo prepay all outstanding loans within 10 business days&rdquo if:

 

The manager ceases to manage Keppel Reit or is no longer a wholly owned subsidiary of Keppel Capital and

A wholly owned subsidiary of Keppel Capital is not &ldquo appointed as a replacement or substitute manager of Keppel Reit&rdquo . 

Under the second facility, for a S$297.3 million bridge loan, the borrower must make full prepayment in five business days of notice if:

 

The manager ceases to manage Keppel Reit or

The manager is no longer fully directly and/or indirectly owned by Keppel, and a wholly owned subsidiary of Keppel is not appointed as a replacement or substitute manager.

For the third facility, which covers a S$294.7 million bridge loan, the borrower must prepay the loans in 10 business days of notice if:

 

The manager is no longer wholly owned by Keppel or

The manager ceases to manage Keppel Reit, and a wholly owned subsidiary of Keppel is not appointed as the Reit&rsquo s manager.

 

Keppel REIT, whose portfolio mainly comprises prime commercial assets in Asia, says it has obtained three bridging loan facilities totalling over $891 million.

 

In a bourse filing on Dec 24, Keppel REIT says it has obtained three bridging loan facilities worth $300,000,000, $297,330,000 and $294,666,667 respectively. It did not specify how the loan facilities will be used.

 

All three loan facilities come with a covenant stating that Keppel REIT would have to prepay all outstanding loans if Keppel REIT Management ceases to manage Keppel REIT or be a wholly-owned subsidiary of Keppel Capital Holdings, and if Keppel Capital Holdings does not appoint a wholly-owned subsidiary as a substitute manager of Keppel REIT.

 

If the covenants of all three loan facilities are breached and a cross default under other borrowings of the Keppel REIT group occurs, the aggregate level of facilities affected would be about $2,857 million. The sum excludes interest charges and fees.

 

Earlier, on Nov 25, Keppel REIT said it had secured three loan facilities totalling A$440 million ($378.62 million). The usage of those loan facilities were also not specified.

Keppel Reit remains anchored in Singapore despite its foray into Australian retail

 

[SINGAPORE] Keppel Reit is charting a more diversified growth path that allows for retail assets to account for up to 20 per cent of its office-heavy portfolio.

 

But Singapore will remain its anchor market.

 

The strategy reflects a careful balancing act for the Singapore-listed real estate investment trust (S-Reit) by tapping opportunities in a recovering retail sector to broaden income streams, while meeting long-standing investor preference for Singapore-focused assets.

 

The pivot took a concrete step in October this year, when Keppel Reit acquired its first pure-play retail asset &ndash Top Ryde City Shopping Centre in Sydney &ndash for A$393.8 million (S$334.8 million). The deal lifted the Reit&rsquo s retail exposure to about 4 per cent of the portfolio as at Oct 31 and marked a notable shift for the business that has spent the past two decades focusing largely on the office space. 

 

Chief executive officer of the Reit manager, Chua Hsien Yang, who took the helm on Jan 1, 2025, told The Business Times that the move into retail was timely, coming against a backdrop of improving market sentiment with interest rates easing from recent highs.

 

&ldquo We really needed to capitalise on the improving market sentiment following the drop in interest rates. So we changed our strategy a little bit (and) we went into retail,&rdquo said Chua.

 

Retail pivot amid easing rates

Chua&rsquo s return to Keppel Reit is itself something of a homecoming. 

 

From 2008 to 2014, he was head of investments at the Reit, a period during which several cornerstone assets were acquired, including stakes in Ocean Financial Centre and Marina Bay Financial Centre. Subsequently, he moved to Keppel DC Reit as its CEO.

 

The operating environment today, however, has improved compared to a few years ago when interest rates were high, said Chua. Interest rates have come down and in Singapore&rsquo s Central Business District (CBD), limited new office supply has coincided with a &ldquo flight to quality&rdquo offices by tenants post-pandemic.

 

&ldquo Tenants are also increasingly trying to consolidate their staff into a central location. So the demand for CBD (offices) has actually increased,&rdquo said Chua. Even as some tenants are seeking larger floor plates, he noted that Keppel Reit has limited space to meet that demand.

 

Investors have also expressed growing interest in the commercial sector beyond offices, particularly retail.

 

While Keppel Reit&rsquo s mandate covers the commercial sector, it has largely focused on offices over the past two decades as the sector&rsquo s yields were higher.

 

Chua noted that retail yields have risen from around 2 per cent pre-Covid to about 4 per cent, even as office yields remained steady at around 3 per cent.

 

&ldquo So at this point in time, there is this opportunity for us to be able to acquire retail at higher than office yields,&rdquo he said.

 

He added that there are &ldquo strong tailwinds&rdquo in the retail sector, as early concerns over the negative impact of e-commerce on physical malls have proven unfounded. &ldquo And in places like Australia, for example, e-commerce is still not popular because delivery fees are very expensive. People will physically go to the stores to buy stuff,&rdquo said Chua.

 

Chua said the Reit manager had explored opportunities across both the office and retail sectors in the Asia-Pacific. But while there was a sufficient pipeline of assets to acquire in both, retail provided meaningful diversification.

 

In Australia, incentive levels for office leases are above 30 per cent, significantly higher than those for retail, which are below 20 per cent. Incentives refer to the value of benefits that landlords offer to attract tenants.

 

Overseas diversification

Chua said Top Ryde City Shopping Centre was acquired for the demographic profile of the surrounding catchment. Residents in the area have higher-than-average incomes compared with the New South Wales population, and there is a high proportion of Asian residents.

 

He added that Asians tend to spend more time and money at shopping centres, and the Reit manager sees scope to improve both income and income resilience by curating the tenant mix to better cater to Asian shoppers.

 

Nevertheless, he acknowledged that investors generally prefer Singapore assets.

 

&ldquo There&rsquo s nothing against Australia, but they prefer Singapore. I think that is something that we have also taken note of. And of course, if the opportunity arises for us to be able to buy a mall in Singapore, we will definitely look at it,&rdquo said Chua.

 

One key concern investors have with overseas assets is foreign exchange risk. Currencies such as the Australian dollar have weakened against the Singapore dollar, which would negatively impact distributions.

 

&ldquo Investors want Keppel Reit to be more Singapore-focused. So that is something we have taken on board, and we have assured investors that we will try our best to add Singapore assets to the portfolio,&rdquo said Chua.

 

Although the Reit&rsquo s sponsor, Keppel Limited, owns two commercial assets that Keppel Reit does not currently hold, the manager has not engaged the sponsor about acquiring them. Office building Keppel South Central only opened this year and will take time to stabilise, while shopping centre i12 Katong is still in the midst of improving its tenant mix and revenue following asset enhancement initiatives.

 

However, Chua said the Reit manager might &ldquo potentially&rdquo acquire i12 Katong in time to come.

 

Retail exposure, he stressed, will be capped at 20 per cent of the portfolio, up from about 4 per cent as at Oct 31 following the Top Ryde acquisition.

 

&ldquo Of course, there are always going to be people who don&rsquo t like our retail strategy,&rdquo said Chua. &ldquo But in general, the investors are happy.&rdquo

 

Still, Keppel Reit has continued to strengthen its office core. On Dec 11, 2025, it acquired an additional one-third interest in Marina Bay Financial Centre Tower 3 at an agreed property value of S$1.45 billion from Sageland, a subsidiary of Hongkong Land Holdings. 

 

The acquisition has likely pushed the proportion of retail exposure down which means more acquisitions could be in the offing. 

 

Financial performance

For the first nine months of its financial year, Keppel Reit posted distributable income of S$159.6 million, down 0.6 per cent from the previous corresponding period, while net property income rose 8.6 per cent year on year to S$161.3 million.

 

Chua said the slight dip in distributable income was due to the manager taking 35 per cent of its management fees in cash. On a like-for-like basis, distribution would have increased 6.7 per cent year on year.

 

While operating revenues are rising and borrowing costs are easing, Chua noted that the Reit will only feel the full impact of lower interest rates as its loans mature. He added that Keppel Reit is particularly well-positioned to benefit from stronger rental growth due to tight CBD office supply.

 

Ultimately, Chua said the success of the Reit&rsquo s diversification strategy will be reflected in its unit price.

 

&ldquo That is actually critical because without the investors continuing to support us, we don&rsquo t have the capital to make acquisitions,&rdquo he said.

 

Chua noted that units hit the manager&rsquo s S$1-per-unit target in September this year, and are up nearly 14 per cent year to date, closing at S$0.99 on Friday.

 

As at Dec 31, 2024, Keppel Reit&rsquo s net asset value (NAV) per unit, excluding distributable income, stood at S$1.24.

 

Chua said: &ldquo We have already reached our first milestone of S$1 per unit. So for our next (milestone), we are aiming for an NAV such that there is no discount.&rdquo

A quick rebound from its sell-off last week might suggest investors are prepared to stomach some DPU dilution for the right deal at the right time

 

[SINGAPORE] It has been a pretty good year for Singapore-listed real estate investment trusts (S-Reits), with softening interest rates and bullish market sentiment enabling some of the leading players in the sector to actively tap investors and expand their property portfolios.

 

Keppel Reit&rsquo s latest deal, however, could be something of a gamble on the sensibilities of S-Reit investors, and an interesting test of the limitations of these asset securitisation structures. 

 

On Thursday (Dec 11), Keppel Reit&rsquo s manager called for a trading halt and announced that it will acquire a one-third interest in Marina Bay Financial Centre (MBFC) Tower 3 from a unit of   Hongkong Land   : H78 0% at an agreed property value of S$1.45 billion.

 

To partially finance the deal,   Keppel Reit   : K71U 0% has launched a 23-for-100 preferential offering of 923.2 million new units at S$0.96 each &ndash a 6.8 per cent discount to its closing price of S$1.03 on Wednesday. Keppel Reit is scheduled to trade ex-preferential offering on Dec 19.

 

Here&rsquo s the thing: The pro forma financial numbers provided by Keppel Reit&rsquo s manager do not suggest that the deal will have an immediate positive impact on its distributions per unit (DPU). 

 

In fact, if Keppel Reit&rsquo s purchase of the additional one-third stake in MBFC Tower 3 had been completed at the beginning of 2024, and assuming a blended debt cost of 3.3 per cent, its DPU for the year would have been 6.4 per cent lower. 

 

Assuming a more favourable blended debt cost of 2.2 per cent, its DPU for 2024 would still have been reduced by 3.6 per cent. 

 

Will S-Reit investors support an acquisition that is not at least marginally accretive to DPU? What would it mean for the S-Reit sector if they did?

 

Seizing an opportunity

There are a number of good reasons for Keppel Reit to acquire a further one-third stake in MBFC Tower 3, despite the likely dilutive impact on its DPU. 

 

The deal will expand the size of Keppel Reit&rsquo s property portfolio, from S$9.8 billion to S$11.2 billion, and increase its exposure to Singapore&rsquo s prime office sector, from 75.8 per cent to 79 per cent. 

 

Citing research from major property consulting firms, Keppel Reit&rsquo s manager said last week that average vacancy rates at Grade-A office properties in the Central Business District (CBD) fell to 5.1 per cent in the third quarter of 2025, from 6.6 per cent the same period a year earlier. 

 

It also noted that no new office projects are expected in the Marina Bay area between 2026 and 2029, and that the government has not recently released land for office developments in the CBD.

 

With tightening supply of prime office space in the CBD, rents will probably rise over the next few years.

 

The opportunity for Keppel Reit to acquire a further one-third interest in MBFC Tower 3 against this positive backdrop only arose because Hongkong Land was contractually obligated to offer its stakes in some of its key properties to its partners before transferring them to a fund.

 

Hongkong Land said last week that its first private real estate fund &ndash dubbed the Singapore Central Private Real Estate Fund &ndash will have assets under management of S$8 billion at inception. 

 

The fund will focus solely on managing prime commercial properties in Singapore, and it is expected to be seeded by assets from Hongkong Land and other sources.

 

Hunt for yield

Over the years, Keppel Reit has expanded across asset classes and geographies to gain heft and resilience. 

 

Besides Singapore, it has exposure to office properties in Australia, South Korea and Japan. Earlier this year, it also acquired a 75 per cent stake in the Top Ryde City Shopping Centre, a freehold retail mall in Australia. 

 

This diversification would have been appealing to income-focused investors. The prime office properties in Singapore that form the core of Keppel Reit&rsquo s portfolio tend to be valued at relatively low capitalisation rates. As the deal its manager announced last week demonstrates, it is tricky to acquire such assets on terms that would be immediately accretive to DPU.

 

Acquiring higher-yielding commercial properties in foreign markets such as Australia makes it easier to immediately deliver the higher DPUs many S-Reit investors crave.

 

Yet, investors are clearly sensitive to risk, too. S-Reits that are focused on commercial properties in Singapore tend to trade at higher valuations than S-Reits with faraway assets. The backing of a well-resourced, Singapore-based sponsor group can also make a big difference. 

 

  CapitaLand Integrated Commercial Trust   : C38U 0% &ndash the largest of the S-Reits, with a property portfolio that is roughly 95 per cent exposed to Singapore &ndash is currently trading at an annualised H1 2025 DPU yield of 4.8 per cent, and 1.09 times its net asset value (NAV). 

 

The lesser known   Stoneweg Europe Stapled Trust   : SET 0% &ndash which has no assets in Singapore &ndash is trading at an annualised H1 2025 DPU yield of 8.2 per cent, and 0.78 times NAV.

 

Meanwhile, Keppel Reit&rsquo s units are trading at an annualised H1 2025 DPU yield of 5.7 per cent, and 0.78 times NAV.

 

So, will its further investment in MBFC Tower 3 draw applause from the market? Or, will concerns about the DPU dilution weigh on its units?

 

Dipping on dilution

When Keppel Reit&rsquo s trading halt was lifted on Friday, its units suffered a significant sell-off. They ended the day 6.8 per cent lower &ndash at S$0.96. 

 

Even if Keppel Reit&rsquo s units were to dip further this week, the preferential offering at S$0.96 per share would not be scuppered. About 37.3 per cent of Keppel Reit&rsquo s units are held by entities under the Keppel group, all of which have provided irrevocable undertakings to subscribe and pay for their respective entitlements. 

 

  DBS   : D05 0%,   OCBC   : O39 0% and   UOB   : U11 0% &ndash which have been appointed joint bookrunners and joint underwriters &ndash will mop up any unsubscribed entitlements of the other unitholders. 

 

Yet, it would not be a good look if the market price of Keppel Reit&rsquo s units were to fall significantly below the preferential offering price for an extended period of time. In my view, that would be a clear signal that DPU dilutive deals are simply unacceptable to S-Reit investors.

 

The upshot would be that Keppel Reit, and its S-Reit peers, will have to confine themselves in the future to acquiring assets that have the potential to deliver immediate DPU accretion. This would leave them with a narrower range of options to expand their property portfolios. 

 

If Keppel Reit were to quickly rebound, however, it might suggest that S-Reit investors are prepared to look past temporary DPU dilution for the right deal at the right time &ndash and embolden S-Reit managers to seize opportunities.

 

Despite the sell-off last week, Keppel Reit is still among the 10 best performing constituents of the iEdge S-Reit Index in 2025. With distributions re-invested, it has chalked up a total return of 19.4 per cent since the beginning of the year, versus the index&rsquo s total return of 14.4 per cent.