For the past couple of years, Keppel REIT (SGX:K71U) has perhaps been the quieter sibling in the bustling Singapore REIT family. While industrial, logistics, and data center REITs enjoyed a booming run, and retail trusts benefited from the post-pandemic recovery, office REITs like Keppel Reit were often overshadowed by concerns over remote work and rising interest rates.
I have held a position of 10,351 shares of Keppel Reit in my Supplementary Retirement Scheme (SRS) account, viewing it as a core, long-term defensive play. Keppel Reit was in fact my maiden investment using SRS funds in 2016 as I thrilled at the dream of owning a tiny slice of the MBFC skyscrapers for office rental collection to align with my retirement aspirations.
But a major announcement this past Thursday, December 11, 2025, has shifted my posture from defensive to aggressive.
The management executed a major, strategic move that immediately changes the complexion of the REIT and its investment proposition. This is not just news; it is a clear, calculated opportunity to supercharge my retirement funds.
1. The Core Acquisition: MBFC Tower 3
Keppel Reit is acquiring an additional one-third interest in the iconic Marina Bay Financial Centre (MBFC) Tower 3 for an agreed property value of approximately S$1.45 billion.
Resulting Stake: This move dramatically increases KREIT’s ownership in this Grade A asset from one-third to a two-thirds controlling interest.
Pricing: The acquisition was secured at a slight discount of 1.0% to the property's independent valuation, ensuring KREIT acquired the asset at a fair, if not attractive, price.
2. The Funding Mechanism: A Substantial Preferential Offering
To partially finance this major acquisition, KREIT is conducting a fully underwritten, non-renounceable Preferential Offering (PO) to raise gross proceeds of approximately S$886.3 million.
The Ratio: Entitled unitholders are being offered 23 new units for every 100 existing units held.
The Price: The new units are offered at a fixed price of S$0.96 per unit, representing a significant 6.8% discount to the undisturbed market price of S$1.03 (as of December 10, 2025).
The timeline is as follows:
3. Immediate Implications
This is a defensive and offensive move:
Strengthening the Core: It doubles down on the premium Singapore office sector, boosting KREIT's exposure to Singapore from 75.8% to 79% of its portfolio value.
The Trade-Off (The DPU Dilution): While the deal strengthens the portfolio long-term, the sheer volume of new units issued (approximately 23.9% of the existing unit base) means a widely reported expectation of short-term Distribution Per Unit (DPU) dilution.
What I will do?
My decision to fully participate in this PO is a direct response tailored specifically to my retirement goals.
A. Maximising My Entitlement
Based on my existing holding of 10,351 Keppel Reit shares in my SRS account, my entitlement under the PO is calculated as follows:
B. The Conviction: Potential Upside and more Passive Income overcome Dilution
I am participating fully because I believe the long-term value creation from the MBFC acquisition far outweighs the short-term DPU hit.
The passing rent at MBFC Tower 3 is reported to be approximately 10% below the current Marina Bay average. Given the projected scarcity of new Grade A office supply in the core CBD over the next few years, Keppel Reit is poised to capture strong positive rental reversion when current leases expire. This rental upside, combined with the immediate discount achieved via the PO, makes this a high-conviction trade for my retirement portfolio.
As I have held Keppel Reit for more than 9 years now, after factoring in more than S$5k of dividends collected, my average holding cost is merely $0.48 per share. This preferential offering exercise presents me a great opportunity to add shares and average up without incurring much trading fees.
KREIT is a pure-play Grade A office REIT, with a heavily Singapore-centric portfolio, which is highly prized for its stability. The MBFC acquisition boosts Singapore exposure (post-deal), reinforcing its status as a major landlord in the prime Core CBD (Marina Bay, One Raffles Quay, Ocean Financial Centre). The portfolio-wide occupancy rate of above 96% remains robust, significantly higher than the typical sector average, indicating high tenant demand for its premium spaces. In Q3 2025, the REIT continued to report double-digit positive rental reversions, showing that market rents are rising when old leases expire, a strong signal for future income growth.
The preferential offering, despite raising capital at a discount, is expected to slightly lower the pro forma Net Asset Value to approximately S$1.18 per unit. Even at this adjusted value, the REIT's units are still trading well below book value. Trading below NAV means you are buying Grade A assets like the one-third of MBFC Tower 3 and the existing majority stake in Ocean Financial Centre, at a structural discount.
While office REIT yields have been pressured by higher interest rates, KREIT historically offers a competitive yield. Keppel Reit's current dividend yield is approximately 5.5%. The PO is funding a long-term strategic asset, which means the DPU is expected to be dilutive by 3.6% to 6.4% in the short term, depending on the final cost of debt. This is the main short-term trade-off.
The investment decision hinges on the belief that the superior quality of the MBFC Tower 3 acquisition will drive accelerated rental income growth once current leases are renewed at positive rental reversion, quickly recovering the DPU dilution and pushing future yields higher.
In summary, Keppel REIT is strategically acquiring a valuable asset (MBFC Tower 3) at an opportune time (discount to valuation, while market rents are rising). The current valuation, characterized by its P/NAV discount and competitive yield, provides an attractive entry point for long-term investors willing to look past the short-term DPU dilution.
Disclaimer: This article is for informational purposes only and does not constitute financial advice. It's crucial to conduct your own research or consult with a qualified financial advisor before making any investment decisions.
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