Four Weddings and a Divorce – Acquisitions and Divestments by S-REITs

by: Tam Ging Wien

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The month of September and October has been shaping up to be pretty busy months for the Singapore listed REITs (S-REITs), not just because they are preparing to announce their quarterly results but also the market received a string of acquisition announcements.

Keppel DC REIT (KepDC) kicked of the first announcement in September declaring plans to raised S$478.2 million to fund its proposed acquisition of two data centres worth about S$587 million and followed closely next by Mapletree Industrial Trust (MIT) who has since secured S$400 million to acquire a US$1.4 billion data centre portfolio together with Mapletree Investments. Later on in the month, Manulife US REIT (MUST) announced its plans to raise US$142.1 million to finance its US$198.8 million acquisition of a Class A office building in Sacramento, California.

The big announcement came in the final week of September with Mapletree Commercial Trust (MCT) announcing the largest S-REIT acquisition this year with its proposal to acquire Mapletree Business City (Phase 2) (MBC II) in Pasir Panjang at an agreed property value of S$1.55 billion from Heliconia Realty, a direct wholly-owned subsidiary of Mapletree Investments, MCT’s sponsor.

On the other side of the story, Keppel REIT also announced that it has sold Bugis Junction Towers to Village Prop for $547.5 million or $2,200psf, $388 million more than the $159.5 million the property was acquired for in 2006.

In total, 4 S-REITs announced an acquisition and 1 a divestment in the month of September alone!

If the drastic rise in the S-REIT market cap is anything to go by, REIT investors in Singapore are enjoying close to 26% capital gains in the on average in the last 12 months.


With rich valuations in the share prices of S-REITs, the cost of equity is drastically reduced. Many REITs are taking advantage of this climate to raise funds from unitholders at attractive valuations and putting them to good use through DPU accretive acquisitions.

In the article, we take a quick look at details of these announcements.

Manulife US REIT (MUST)

MUST has proposed to fund the acquisition of 400 Capitol – a Grade A Office building located in the submarket of Sacramento, California. Valued at US$200.5mil, the acquisition will be funded with a combination of debt and equity. Two Equity fund raising methods where used:

  • A strongly supported; 7-times oversubscribed private placement at a price of US$0.876 per unit raising about US$80.0mil
  • A preferential offering at a price of US$0.860 per unit to raise approximately US$62.7mil

Source: Manulife US REIT

From a macro perspective, we can see that demand for office space in the submarket is high with occupancy rates increasing year after year driving up rental prices. This is important to ensure that future rental reversions would trend upwards for the REIT.

An important point to note is that the submarket has a very high replacement cost of US$700psf. At the purchase price of US$198.8mil and a net leasable area of 500,662sqft, it works out to an acquisition of just US$397psf. Replacement cost is the all-in cost it takes to construct a similar specifications structure in the same submarket. As replacement cost is so much higher than the acquisition cost, it discourages developers to acquire land to construct new buildings as they would need to ask for much higher rentals to compensate for the higher development cost making their buildings less competitive.

400 Capitol has a strong occupancy of 94.9% and a long WALE of 5.9 years.

The tenant profile is a good mix of Finance, Insurance, Legal and Account firms with brand names like Wells Fargo, Morgan Stanley and Crowe Horwath. The building does however have a 10% exposure to WeWork, the co-working company that recently made bad press after withdrawing from its high profile IPO in the US. Fortunately, from a total portfolio angle, MUST thus far been very prudent in ensuring each of its buildings have limited exposure to co-working while still embracing the trend. We think that any fallout from the WeWork situation; should it happen, would be limited considering the security deposits that are present in the leases. Further, should a fall out happen, the high demand in the vicinity would likely allow MUST to secure a new tenant very quickly.

CapitaLand Commercial Trust CCT) in comparison has a full building exposure to WeWork who will be taking over the HSBC building in Collyer Quay after the bank moves out in 2021. This brings CCT’s exposure to WeWork all the way up to 7% of its portfolio, the highest of all the S-REITs. As a comparison, Suntec REIT and Frasers Commercial Trust only has a 3% co-working tenant exposure.

The change of lease for CCT is still about 2 years away and any fall out from WeWork’s situation should give enough time to CCT to manage the impact.

Source: Manulife US REIT

As with any acquisitions, we are glad to see that it is DPU and NAV per Unit accretive to unitholders. Unitholders also enjoy a reduction in the overall REIT gearing.

Overall, we think this is a great buy by the REIT and will continue to fuel its growth. Management has also been very strategic in the assets that they pick and making efficient use of the equity fund raising in the current climate. We also like how the REIT provided both equity fund raising routes of private placements and preferential offerings allowing minority investors to also participate in the growth of the REIT. As the management has been very active in sourcing for good deals, we are looking forward to more announcements in the future. Prospects seem bright for MUST.

Keppel DC REIT (KepDC)

KepDC has successfully raise about S$235.4mil in a very successful 9.3-times oversubscribed Private Placement and is likely to reach its target of $242.8mil from the Preferential Offering to be issued at $1.71 per unit. The purpose of the equity fund raising exercise is to partially fund the acquisition of 99% state in Keppel DC Singapore 4 (KDC SGP 4), along with a 100% stake in 1-Net North Data Centre (1-Net North DC).

This comes shortly after good news that that KepDC has been included into the FTSE EPRA Nareit Global Developed Index.

It was just good news after good news for this REIT. AUM, portfolio occupancy and portfolio WALE would all increase as a result of this acquisition. Unitholders also enjoy a reduction in the gearing from 31.9% to 30.3%.

Source: Keppel DC REIT

But the real treat of the deal is the estimated 9.4% to potentially a 12.4% DPU accretion for unitholders. KepDC has been prudent to announce a more conservative accretion of 9.4% with the assumption that tax transparency is not granted to KDC SGP 4.

KepDC will submitted an application to Inland Revenue Authority of Singapore (IRAS) to seek a confirmation that the income from KDC SGP 4 would be granted tax transparency. We can’t think of a reason why the tax transparency would not be granted, and we remain hopeful that the full benefits of the tax transparency would be realised for unitholders.

Source: Keppel DC REIT

While we have been very accustomed to KepDC’s very high and evenly distributed portfolio lease profile, we were a little surprise to see that KDC SGP 4 only has a 3.0-year WALE compared to the portfolio average of 7.8 years. Nonetheless, we continue to believe in the stability, predictability and stickiness of tenants in the data centre lease sector and expect that leases are likely to be renewed in 3 years’ time barring any unforeseen circumstances.

Source: Keppel DC REIT

Overall, we are very surprised and also delighted at the exceptionally high DPU and NAV per Unit accretion of this acquisition. At 9.4% accretion, it is one of the highest we have seen for S-REITs in recent memory. If tax transparency is granted, the accretion could be driven up to over 12%. The stability from its long WALE give us confidence in our positions in the REIT.

Mapletree Industrial Trust (MIT)

Just like KepDC, MIT also announced an acquisition of 13 data centres across the US and Canada through a 50-50 joint venture with its parent Mapletree investments. This is on top of another 40-60 JV of 14 data centres that MIT had acquired 40% back in 2017.

Source: Mapletree Industrial Trust

The current 2019 thirteen data centre JV (known as the “MRODCT” portfolio) and the 2017 fourteen data centre JV (known as the “MRDCT” portfolio) are rights-of-first­-refusal assets from its parent. Therefore, MIT could acquire the remaining 50% and 60% stake respectively in the future, creating a visible growth pipeline for the REIT.

We like the enlarged data centre portfolio under MIT as it gives stability, predictability and longer WALE to complement its other flatted factories, business parks and stack-up/ramp-up buildings assets.

Interestingly, MIT decided not to disclose the major tenants, instead choosing to only to vaguely share the nature of the tenant’s business. It’s not clear why they would do so, but we will hazard a few possible guesses for our readers:

  • Global Social Media Company – Facebook perhaps?
  • Global Colocation Provider – Digital Reality or Cyrus One perhaps?
  • Fortune 25 Investment Grade-Rated Company – AT&T perhaps?
  • Fortune 50 Software Company – Microsoft or Oracle?
  • IT Solutions Provider – IBM?

Source: Mapletree Industrial Trust

The portfolio was a 100% occupancy rate and a 9.1-year WALE, and therefore organic growth in the future will have to depend on future rental escalations embedded within the contracts. This provides greater amount of stability and predictability. The new portfolio also brings in new tenants and reducing the concentration of HP as the largest single tenant from 9.2% to 8.0%.

Source: Mapletree Industrial Trust

Finally, and most importantly from the perspective of the unitholder, we always want our REIT holdings to make DPU and NAV per Unit accretive acquisitions. The addition of the MRODCT portfolio could potentially boost MIT’s DPU by 3.5% while adding 3.3% to the NAV per Unit.


In general, the industrial real estate sector in Singapore has been very flattish with neither rentals nor the price index showing any signs of growth. MIT’s foray into the overseas growth market is necessary to ensure continued growth in the REIT and we are happy that they management has been actively doing so.

Mapletree Commercial Trust (MCT)

MCT was another REIT has received a string of good news recently. First it was announced that it will replace Hutchinson Port Trust (HPH) in the Singapore Straits Times Index, a short time later it announced that it was proposing to acquire Mapletree Business City II (MBCII) and finally it received an affirmation of its Baa1 credit rating with a stable outlook from Moody’s.

We are expecting more good news from MCT on 15-Oct-2019 where it will be holding its EGM for shareholders to pass resolutions confirming the acquisition of MBCII and later announce its quarterly results which we expect a further increase in DPU and NAV per Unit.

We will be covering more about the MCT and the MBCII acquisition in our following articles:

Keppel REIT (KepREIT)


Given how the office sector in Singapore has run up since its bottom in early 2017, it is not surprising that many office S-REITs have been divesting their assets to realise capital gains. Last year, we already saw at least 3 office building divestments from S-REITs namely:

Keppel REIT announced the sale of Bugis Junction Towers for $547.5 million ($2,200 psf) and will realise a capital gains of $378.1mil based on its acquisition price of $159.5m ($645 psf) which was held since the REIT’s listing in 2006.

With current cap-rates in the office sector compressing to yields that of borrowing cost or below, it does generally make sense to divest the asset. The first half year, Bugis Junction Towers contributed a net property income of $8mil and at a valuation of $547.5mil, this works out to a cap rate is just 2.92%. Comparatively, KepREIT’s all-in interest cost is 2.86%, after accounting for other cost, it simply just makes sense to sell.

KepREIT has state that the divestment would allow it to:

  • Continue DPU-accretive Unit buy-back programme
  • Redeploy funds to higher yielding assets
  • Distribute capital gains
  • Pare down debt

Source: Keppel REIT

While in general we agree to these points, our concern is that KepREIT has been paying itself far more in units due to high management fees compared to the amount of unit buyback. In the first half-year alone, KepREIT has bought back and cancelled 15.49mil while paying itself 24.5mil new units in management fees. In order words, just on management fee alone, more units are created, concentrating the manager’s shareholdings while diluting the minority shareholders. This is one among many other reasons for the fall in KepREITs DPU over the last few quarters.

Source: Keppel REIT

Investors also need to take note that the pro forma impact of this divestment is likely to reduce DPU further unless they buyback more shares to offset this dilutive impact.

Source: Keppel REIT

Overall, while we think that the divestment makes sense from the macro climate in the Singapore office sector, the constant dilution from KepREIT’s high management fees which are paid in units are not favourable to unitholders in the long term.


We are thrilled that many of the S-REITs that we know and love are capitalising the current market environment to raise funding with a low cost of equity. It is certainly the logical thing to do as it reduces the dilution as REITs can raise more money by issuing less units making it easier to fund DPU and NAV per Unit accretive acquisitions.

If this situation last, perhaps we will see more equity fund raising as well as IPOs for the rest of the year.

As for divestments, its not necessarily a bad thing if the REIT is able to secure a good price for the asset especially when its cap rates are almost at par or lower than its interest cost.

Positioning to Ride the Recovery

Opportunities and Risk Post-COVID-19 Pandemic in the various S-REIT Sectors

The COVID-19 crisis has brought about an unprecedented economic shock to many sectors, and yet it has also generated opportunities in others.

The tech sector has been a major beneficiary and along with that, S-REITs exposed to the Data Centre sector such as Keppel DC REIT and Mapletree Industrial Trust gained phenomenally.

But are the investment opportunities in REITs now gone? Personally, we do not think so. There are still many REITs below their pre-COVID-19 levels poise to recover strongly in the coming quarters – and now it is the best time to prepare to capture the post-COVID recovery.

Join us as we discuss the opportunities and risk in the S-REIT space sector-by-sector as we try to uncover recovery opportunities for FY2021 and beyond. Real estate sectors that we will be covering include the Retail, Hospitality, Offices, Healthcare, Industrial and Data Centres.

Our speaker Tam Ging Wien will be sharing his knowledge and experience including:

  • Part 1: A Survey of the REITs Landscape Around The World
  • Part 2: Key Metrics in Identifying Strong REITs
  • Part 3: Real Estate Sector Review Amidst the COVID Crisis
  • Part 4: Screening for Opportunities
  • Part 5: Q&A

Some key highlights that will be covered includes:

  • Real estate sector-by-sector review on COVID-19 impact and recovery opportunities. Sectors covered include the Retail, Hospitality, Offices, Healthcare, Industrial and Data Centres.
  • Opinion on which sector will continue to stay resilient and which are poised to recover quickly post-pandemic
  • The right metric to use when screening for high quality REITs
  • Case studies of REITs which are considered high quality
  • Step-by-step demo of how to screen for high quality REITs on your own

During the sharing session, various Singapore-listed REIT examples will be used.

There will also be a Q&A so that members of the investing community may engage in open dialog and discussions in order to deepen their understanding of REITs. Do prepare your writing materials for note taking.

Please note that the duration of the on-site seminar is 7pm to 9:45pm Singapore Time (GMT +8).

The details of the event are as follows:

  • Seminar: Positioning To Ride The Recovery
  • Date: 5th May 2021 (Wed)
  • Time: 7:00pm to 9:45pm
  • Venue: RNN Conference Centre - Kyoto Training Room (Level 4), 137 Cecil Street, Cecil Building #04-01, Singapore 069537
  • Fees: S$10.00
  • Sign-up Link:

To learn more about REITs, we recommend the article: What are REITs?


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