Mapletree Commerial Trust to boost DPU by 5% from MBC acquisition

Acquisition may be possible in 6-12 months.

According to Macquarie Research, based on its existing gearing of 40.9%, Mapletree Commerial Trust has additional debt headroom of circa S$290m before reaching its optimal level of 45%. SREITs’ gearing currently stands at 32.8%, with only a few treading beyond the 35% mark. Macquarie believes investors also prefer SREITs’ gearing to hover around the 40% mark.

Out of the 9 ROFR properties, Macquarie believes Mapletree Business City (MBC) is the most likely candidate to be injected into MCT over the next 6-12 months.

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Mapletree Lighthouse will only be completed in 2015, while Keppel Bay Tower, HarbourFront Tower One and HarbourFront Tower Two are subjected to pre-emption rights as they are not 100%-owned by MIPL. 

Contribution from Saint James Power Station could be irregular due to it being more of a  nightspot than pure retail space. The Comtech is expected to undergo a major redevelopment at the end of 2013, and will only complete in 2016.

While HarbourFront Centre could be a good fit given that it is directly linked to VivoCity, our initial estimates imply that it might not be yield-accretive at this point.

Hence, MBC makes the most sense, given its office and business park components. The only caveat to the transaction is that it will add an industrial element to MCT’s portfolio, which might not sit well with some investors who prefer its core retail exposure.

Assuming that the acquisition of MBC is 40% funded by debt at NPI yield of 5.6%, it could add 0.32 S cts to MBC’s FY14 DPU, representing an accretion of 4.8%. Assets would increase by circa 30% to S$5b.