MBCII buy to boost Mapletree Commercial Trust's DPU by up to 6%: analyst

Decentralisation efforts will lend support to MCT’s business park operations.

Mapletree Commercial Trust’s proposed acquisition of Mapletree Business City Phase 2 (MBCII) is projected to bring a 4-6% distribution per unit (DPU) accretion as it will raise the trust’s assets under management (AUM) 21% to $8.9b, according to an analyst report by Maybank Kim-Eng.

These units are also said to have outperform the S-REITs by 23% YTD and its 32% gearing post-deal is expected to support its 1.8m sqft net lettable area (NLA) sponsor pipeline.

Also read: MBC 2 buy could boost Mapletree Commercial Trust's FY2020 DPU by 2.8%

MBCII is a 1.2m sqft NLA development valued at $1.55b comprising a business park (1.17m sqft) and common property, backed by 99.4% committed occupancy with 97% of leases embedded by 2.3% parental step-ups on average.

In a separate report by Jefferies, analysts said that the proposed acquisition will bring MCT full-control of The Alexandra Precinct (3.4m sqft NLA), which may give operational efficiency and flexibility to meet tenant space requirements. The move could also allow MCT to emerge as a key player in Greater Southern Waterfront development project.

“MBC II will diversify revenue mix with NPI contribution from VivoCity mall going down from 47% to 38%. It will also strengthen tenant mix with increased exposure to the technology sector. Portfolio AUM will increase by 20% to $8.9b and portfolio NLA will increase by 24% to 4.9 million sqft. The offering will increase free float by 14.4% which may result in broader index inclusion,” said Krishna Guha, equity analyst at Jefferies.

The government’s decentralisation efforts have also aided in business park growth fundamentals as 53% of business park tenants at MBC II had relocated from the CBD. The report noted that rental growth outlook is supported by high precommitment on new supply and demand especially for assets at the city fringe, as well as a widening rental gap between Grade A office and business parks.

As the deal is described to be “relatively expensive”, Maybank Kim Eng expects the purchase to be funded by debt up to $800m at 2.9% interest cost per annum and an equity fund raising of up to 500 million new units.