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

Google took up two office blocks totalling 150,000 sqft to house its engineering team.

The potential acquisition of Mapletree Commercial Trust’s (MCT) Mapletree Business City 2 (MBC 2) could raise pro forma its FY2020 distribution per unit (DPU) by 2.8% to $0.0965, a report by UOB Kay Hian revealed.

The DPU accretive assumption is based on assumptions that MBC 2 is valued at $1.35b or $1,152 psf (based on a cap rate of 5%), a passing rent of $6 psf, and a 50:50 debt and equity mix, analysts Jonathan Koh and Peihao Loke said, highlighting how tech giant Google is the anchor tenant of MBC 2.

“Google has taken up two office blocks totalling 150,000 sqft at MBC 2, which houses its engineering hub in Singapore with 1,000 employees,” they said. The team in Singapore is said to be responsible for the translation of content into Asian languages, enabling Google Map and YouTube for offline usage in countries where mobile data is limited or expensive, and virtual reality (VR) and augmented reality (AR) projects.

Also read: Frasers Commercial Trust inks lease agreement with Google

MCT’s other properties have also been undergoing continuous enhancements, which Koh and Peihao noted will generate positive reversion of 3.5% in FY 2019.

The firm converted 9,200 sqft of anchor space at VivoCity, Singapore’s largest retail mall with a net lettable area of 1.1 million sqft, into speciality space on Levels 1 and 2, which was taken up by existing tenants who are expanding and new-to-mall brands.

Also read: Can Mapletree Commercial Trust maintain steady DPU as VivoCity ages?

“The asset enhancement initiative (AEI) costs $3m and provides return on equity (ROI) of 29% on a stabilised basis,” the analysts highlighted. MCT also converted 32,000 sqft of space on Level 3 into a public library, which opened in January.

“The bonus GFA was utilised to build a 24,000 sqft extension at Basement 1 that houses 10 lifestyle and athleisure brands, which are higher-yielding specialty shops that opened in June. The AEI costs S$16m and provides an ROI of more than 10%. Occupancy had recovered by 6.3pp YoY to 99.4% as of March.”

Meanwhile, the analysts noted that VivoCity stands to be the prime beneficiary of the rejuvenation of Sentosa and Pulau Brani.

“It achieved positive rental reversions of 24.9% in FY 2012 after Resorts World Sentosa opened in January,” they explained. The mall could also benefit from the upcoming residential enclave at Greater Southern Waterfront, which increases the population of affluent consumers in its catchment area. VivoCity reportedly attracts shopper traffic of 55.2 million per year.