RHB ‘slightly negative’ on Keppel Reit’s MBFC deal, advises switch to Suntec Reit

[SINGAPORE] Investors seeking office Singapore-listed real estate investment trusts (S-Reit) exposure should consider switching from Keppel Reit to Suntec Reit due to the latter’s “slightly negative” deal for a one-third stake in Marina Bay Financial Centre (MBFC) Tower 3.

Funding for the deal, which was announced in December 2025, should have come from divestments instead of “significant dilutive” equity fundraising and tight pricing, said RHB analyst Vijay Natarajan in a note on Friday (Jan 2).

The analyst kept a “neutral” rating but lowered Keppel Reit’s target price to S$0.98 from S$1.05, with zero per cent upside.

Natarajan’s comments come shortly after the manager of Keppel Reit shared a transcript of a dialogue with the Securities Investors Association (Singapore) earlier on Friday. The manager said it was unable to fund the acquisition from divestments as it only had 20 calendar days to respond to the pre-emptive offer notices from Hongkong Land.

Keppel Reit recently completed the purchase of a one-third stake in MBFC Tower 3 from Hongkong Land for S$1.45 billion, with the deal set to dilute both distribution per unit (DPU) and net asset value (NAV). This is despite the property’s “strong positioning” as a “high-quality Grade-A” office.

The acquisition price of S$1.45 billion, or S$3,268 per square foot, is a “hefty 4.7 per cent premium” to the property’s December 2024 carrying value, though a 1 per cent discount to its latest valuation, noted Natarajan.

The asset’s remaining 80-year lease and net property income yield of about 3.5 per cent at the acquisition price, was also deemed to be “slightly on the lower side”.

The deal will be partly funded by issuance of a preferential offering of 23 new units for every 100 existing units at S$0.96. As the new units are issued at about 23 per cent below book value, the transaction will dilute NAV by about 5 per cent, noted Natarajan.

The gearing after acquisition is expected to be at 41.9 per cent, which the analyst said is “slightly on the higher side”.

SEE ALSO

Keppel Reit wanted more of MBFC, but Hongkong Land’s 20-day deadline hobbled gearing fix

Keppel Reit’s dilutive purchase of MBFC Tower 3 a gamble on the sensibilities of S-Reit investors

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

“Our forecasted FY2026 and 2027 DPU are revised lower by 8 per cent and 9 per cent, respectively, after factoring in the recent acquisition, equity fundraising, perpetual securities issuance, and debt funding costs,” he added.

Office sector the top pick for DBS

Meanwhile, analysts from DBS’ research arm on Friday flagged the office sector as the primary driver of S-Reit growth for 2026, ranking it ahead of the industrial and retail sectors due to a multi-year supply drought and strengthening pricing power in Grade A assets.

They described both the office and industrial sector as the “brightest prospects” for these Reits in 2026.

Among office S-Reits, the analysts highlighted CapitaLand Integrated Commercial Trust as a top alpha pick to benefit from “landlord-friendly” fundamentals, including restricted office supply and a positive rent growth outlook.

The office sector conviction is set against a broader positive backdrop, where the research arm projects S-Reits to enter a sustained two-year earnings upgrade cycle through 2027. Its analysts expect the three-month Singapore Overnight Rate Average to anchor at 1.2 to 1.3 per cent – significantly below recent levels – driving a 2.5 per cent uplift in DPU that markets have not yet fully priced in.

With valuations attractive at 0.9 times price-to-book and yields offering a spread of 3.7 per cent against the 10-year bond, DBS Group Research said this was an ideal entry point for a sector-wide re-rating.

While the office sector is its top preference, the industrial sector remains a key weight. DBS Group Research favoured industrial S-Reits such as Mapletree Logistics Trust and CapitaLand Ascendas Reit , supported by robust demand from tech, biomedical and digitalisation trends.

Conversely, the retail sector was downgraded due to anticipated consumption leakage to Johor once the RTS Link opens and the tapering of CDC and SG60 vouchers.