Keppel REIT’s Strategic Acquisition of Additional Interest in MBFC Tower 3: Key Takeaways for Investors

Introduction

Keppel REIT Management Limited recently conducted a dialogue session with the Securities Investors Association (Singapore) to address the acquisition of an additional one-third interest in Marina Bay Financial Centre (MBFC) Tower 3. This transaction, completed on 31 December 2025, represents a significant move in the Singapore office property market and holds multiple implications for Keppel REIT’s portfolio and its unitholders.

Key Highlights of the Acquisition

• Strategic Rationale: The acquisition is designed to strengthen Keppel REIT’s position in Singapore’s core CBD, focusing on premium assets with resilient income streams. MBFC Tower 3 is seen as a high-quality asset, particularly with DBS Bank as a key tenant, offering income security and portfolio resilience.
• Rental Uplift Potential: The current passing rent for MBFC Tower 3 is approximately \$12+ psf, about 10% below the Marina Bay average of \$13.49 psf. Recent leasing has already achieved rates above the breakeven level required for DPU neutrality, suggesting potential for future rental reversions as leases come up for renewal.
• Market Dynamics: The Singapore Government has not released new land in the CBD, and any new office supply would take at least five years to materialise. This supply constraint, coupled with a strong Singapore economy, positions MBFC Tower 3 for continued strong performance and possible capital appreciation.
• Portfolio Impact: The acquisition will increase Keppel REIT’s aggregate leverage to 49.9%, just below the MAS limit of 50%. The funding mix will be 60% equity and 40% debt, with a temporary Equity Bridge Loan pending proceeds from a preferential offering.
• Immediate DPU Impact: The deal is not immediately DPU accretive. The adjusted pro forma DPU post-acquisition is 4.42 cents, compared to an adjusted FY2024 DPU of 4.72 cents. The actual FY2024 DPU was 5.60 cents, but this included adjustments for management fee changes and the Anniversary Distribution, which will cease after 1H 2027.
• Interest Rate Assumptions: The weighted average cost of debt for the portfolio is 3.45% per annum. Scenarios for the MBFC Tower 3 acquisition use 3.3% and 2.2% per annum, with the lower rate reflecting current market conditions for new debt.
• Long-Term Value Creation: Management asserts strong alignment with unitholder interests, as Keppel Corporation itself holds a 37% stake in Keppel REIT and has incentive to see the REIT succeed.

Important Shareholder Information

• Price-Sensitive Considerations: The transaction increases leverage close to regulatory limits, with plans for future divestments to manage aggregate leverage in 2026. The acquisition may not immediately increase DPU, potentially impacting near-term distributions and share price perceptions.
• Acquisition Fee Justification: The acquisition fee is in line with the Trust Deed and previous transactions. Management will receive fees entirely in units, further aligning interests with unitholders.
• Tax Transparency Strategy: Post-acquisition, Keppel REIT intends to convert the MBFC Tower 3 entity to a limited liability partnership (LLP), unlocking tax savings of \$8m–\$10m per annum for its two-thirds stake. This process is expected to take approximately six months.
• Rental Reversion Opportunity: About 30% of MBFC Tower 3’s leases are due for renewal in the next two years, presenting near-term opportunities for rental uplift and improved returns.
• Impact of Recent Acquisitions: The pro forma leverage calculations do not yet factor in the recent acquisition of a 75% interest in Top Ryde City Shopping Centre in Sydney, which could lower actual leverage figures.
• Market Risks: Management has highlighted macroeconomic and geopolitical risks, but believes Singapore’s office market fundamentals remain robust due to supply constraints and strong demand from international tenants.
• Share Price Volatility: Following the acquisition and fund-raising announcements, Keppel REIT’s share price experienced a decline. Management is committed to delivering strong dividends and safeguarding interests, especially for retirees who depend on distributions.

Management Strategies to Enhance Returns

1. Rental Rate Optimisation: Focus on achieving positive rental reversions as leases expire, leveraging the gap between MBFC Tower 3’s passing rent and the Marina Bay average.
2. Tax Efficiency: Convert the asset holding structure to LLP to achieve tax transparency and unlock substantial annual savings.
3. Debt Management: Actively pursue divestments and refinancing to lower leverage and interest costs, benefiting from a potentially improved interest rate environment.

Market Outlook and Risk Assessment

Singapore remains the regional hub for Southeast Asia, and office tenants seldom compare Singapore to neighbouring markets due to its unique advantages. Core CBD Grade A office vacancies have tightened from 6.6% to 5.1% year-on-year, with no new CBD supply expected. This supports further rental growth and asset appreciation. Nonetheless, management continues to monitor macroeconomic and geopolitical risks, including interest rate movements. The office market fundamentals are robust unless there is a major adverse event.

Conclusion

The acquisition of an additional one-third interest in MBFC Tower 3 is a bold strategic move by Keppel REIT, deepening its exposure to a core asset in a supply-constrained market. Although not immediately DPU accretive and with leverage approaching regulatory limits, management’s multi-pronged strategy aims to deliver long-term value, tax efficiency, and improved rental income. Investors should watch for near-term share price volatility and longer-term upside as these strategies are executed.

Disclaimer: This article is for informational purposes only and does not constitute investment advice or a recommendation to buy or sell any securities. Investors should conduct their own due diligence or consult a financial advisor before making investment decisions, as share prices and distributions may be affected by market conditions and strategic actions described above.

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