Keppel Reit to buy HK Land’s one-third stake in MBFC Tower 3 for S$1.45 billion; launches S$886.3 million rights issue

[SINGAPORE] Keppel Reit has agreed to acquire an additional one-third interest in Marina Bay Financial Centre (MBFC) Tower 3 for an agreed property value of S$1.45 billion, the manager of the Reit announced on Thursday (Dec 11).

The seller is Sageland, a subsidiary of Hongkong Land.

To fund the acquisition, the real estate investment trust (Reit) has launched an underwritten non-renounceable preferential offering to raise gross proceeds of around S$886.3 million.

DBS, OCBC and UOB have been appointed as the joint bookrunners and underwriters for the offering.

Upon completion of the deal, expected on Dec 31, Keppel Reit’s interest in the property will increase to two-thirds.

The Reit had acquired its initial one-third interest in the property from its sponsor, Keppel Land. The remaining one-third stake in the tower is held by DBS.

Preferential offering

Under the preferential offering, entitled unitholders will be offered 23 new units for every 100 existing units held. The issue price is fixed at S$0.96 per new unit.

This issue price represents a discount of around 6.8 per cent to the volume weighted average price of S$1.0301 per unit for all trades on the Singapore Exchange on Wednesday.

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.

SEE ALSO

Analysts upbeat on Singapore’s office Reits, naming one ‘uniquely leveraged’ to tap rental upside

Tech, S-Reits among 30 most traded non-STI stocks in H2 to date

About S$875.6 million, or 98.8 per cent of the gross proceeds, will be used to partially finance the acquisition. The remaining amount will be used to pay estimated fees and expenses incurred in connection with the offering.

Rationale and outlook

The manager described the acquisition as a “strategic opportunity” to deepen the Reit’s presence in Singapore’s Central Business District.

Post-completion, Keppel Reit’s portfolio exposure in Singapore will increase from 75.8 per cent to 79 per cent. The enlarged portfolio value will rise to about S$11.2 billion.

Chua Hsien Yang, chief executive of the manager, said: “The exercise of our pre-emptive right to acquire the incremental one-third share of MBFC Tower 3 presents a rare opportunity to increase our interest in an iconic asset in the prime Marina Bay area, with potential for future rental upside and capital appreciation over the long term.”

The manager cited strong office market fundamentals in Singapore, including improving occupier confidence, cooling inflation and easing global macro uncertainty in its positive outlook.

It also noted that there are no new office projects expected in the Marina Bay area between 2026 and 2029, which could result in a “prolonged drought” of new supply, potentially supporting rental growth.

Financial impact

The manager provided pro forma financial figures, calculating the impact as if the acquisition and offering had been completed retrospectively on Jan 1, 2024.

Based on this illustrative scenario, the transaction would be dilutive to distribution per unit (DPU). The pro forma DPU for FY2024 would drop from an adjusted S$0.0472 to between S$0.0442 and S$0.0455.

This represents a dilution of about 3.6 to 6.4 per cent, depending on interest costs and tax transparency outcomes assumed in the simulation.

Ownership background

MBFC was originally jointly developed by a consortium comprising Hongkong Land, Keppel Land and Cheung Kong.

Following the development’s completion, Keppel Reit acquired its initial one-third interest in the property from its sponsor, Keppel Land. The remaining one-third stake, currently held by anchor tenant DBS, was acquired from Cheung Kong’s share of the building.

The Business Times reached out to Hongkong Land for more details on the rationale of its divestment. Hongkong Land responded that it would soon be making an announcement.