Mapletree Commercial Trust - DBS Research 2016-07-07: Proposed acquisition of Mapletree Business City

Mapletree Commercial Trust - DBS Research 2016-07-07: Proposed acquisition of Mapletree Business City MAPLETREE COMMERCIAL TRUST N2UY.SI 

Mapletree Commercial Trust (MCT SP) - Proposed acquisition of Mapletree Business City

  • Proposed acquisition of Mapletree Business City (MBC) Phase 1 for S$1.78bn or 5.6% implied FY15/16 NPI yield.
  • 3% accretion to proforma 6MFY17 DPU and 2% uplift to NAV per unit.
  • New exposure to the business park segment and Singapore’s decentralisation theme.

Long awaited acquisition. 

  • MCT announced its long anticipated acquisition of Mapletree Business City – Phase 1 (MBC I). The proposed acquisition price is S$1.78bn which is at a 2-3% discount to the independent valuations conducted by Knight Frank and DTZ. 
  • The implied FY15/16 NPI yield stands at 5.6%.The proposed acquisition is expected to be funded through a combination of debt and equity. 
  • The acquisition is subject to EGM approval which is to be convened on 25th July 2016.

Integrated office and business park complex. 

  • MBC I is one of the largest integrated office and business park complexes in Singapore with Grade-A building specifications. Located in the Alexandra Precinct, MBC I is a 10-minute drive from the CBD, and is linked to the Labrador Park MRT Station. 
  • Key tenants include HSBC, Info-Communications Development Authority of Singapore, Samsung, Unilever, SAP, BW Maritime, Nike, Singapore Power, Deutsche Bank and Mapletree Investments.

Expected accretion to both DPU and NAV per unit. 

  • Based on MCT’s estimates, post the acquisition of MBC and assuming the issuance of up to 795m new units at S$1.40 per unit, proforma 6MFY17 DPU is expected to increase by 3.2% to 4.27 Scts from 4.14 Scts. NAV per unit is likewise projected to rise by 2.1% to S$1.31 from S$1.27.

Increase in gearing but below MAS’s gearing limits.

  • Following the proposed acquisition, MCT’s proforma gearing is expected to settle at 38-39%. While up from current 35.1% level, this remains within management’s previous gearing guidance of between 30-40% and below MAS’s 45% gearing limit.

Embedded organic growth. 

  • Approximately 97.5% of MBC I’s existing leases have built in annual rental step-ups of approximately 3.0% on average. This provides for steady organic growth.

New presence in business parks. 

  • Post acquisition of MBC I, MCT’s asset mix will change from 63%/37% retail/office to 44%/36%/20% retail/office/business park. MCT believes its presence in the business park segment at the Alexandra Precinct will provide exposure to
    1. The decentralisation theme – shift of tenants from core CBD to suburban locations due to lower rents and consolidation of offices across multiple locations. Prime rents within the MBC vicinity are at a c.29% discount to Grade-A Core CBD according to CBRE.
    2. Leverage to a potential uplift in office/business park rents in the medium term - according to CBRE there is limited new supply of Grade-A near MBC and CBRE expects office rents to increase by 2019.

DBS is joint Co-coordinators and Bookrunners in relation to the Equity Fund Raising* 
*Equity Fund Raising refers to the potential raising of new shares in relation to the proposed acquisition of Mapletree Business City.

(Mapletree Commercial Trust was rated as BUY with Target Price SGD$1.58 in the previous report issued on 28-Apr-2016.)

Derek Tan DBS Vickers | Mervin Song CFA DBS Vickers | http://www.dbsvickers.com/ 2016-04-28
DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 1.58 Same 1.40