9 things I learned from Mapletree Commercial Trust’s 2016 EGM

On 5 July 2016, Mapletree Commercial Trust (SGX: N2IU) (MCT) announced a proposed acquisition of an office and business park property, Mapletree Business City (MBC), for a purchase consideration of $1.78 billion. This will be MCT’s second acquisition since its IPO.

As a unitholder myself, I attended the extraordinary general meeting MCT held immediately after its FY2016 AGM to find out more details about the proposed acquisition and to vote on the proposed resolutions.

Here are 9 things I learned from Mapletree Commercial Trust’s 2016 EGM:

1. MCT is acquiring Phase 1 of MBC

MCT is acquiring Phase 1 of MBC which comprises an office tower and three business park blocks. Phase 1 was completed in April 2010 while Phase 2 of MBC is currently under development and is due for completion this year. The leasehold for MBC (Phase 1) is 80 years till 2096.

2. Total acquisition cost is $1.86 billion

MBC acquisition cost

The purchase consideration is $1.78 billion which is a 2.3% and 2.8% discount to DTZ’s and Knight Frank’s independent valuation of MBC respectively. The total acquisition cost, however, is $1.86 billion after including acquisition fees paid to the manager ($8.9 million paid in units), stamp duty to the government ($53.4 million), and estimated professional fees and expenses ($16.2 million).

3. Acquisition is NAV and DPU accretive

NAV DPU accretion

The acquisition is expected to be accretive for net property income (NPI) yield, NAV, and distribution per unit (DPU). NPI yield will increase from 5.1% to 5.2%. NAV per share will increase to $1.31 and DPU will rise from 4.14 cents to 4.27 cents.

4. Exposure to the Alexandra/HabourFront office market

The management views MBC as a strategic addition to its portfolio. The property is of the largest integrated office and business park complexes in Singapore. It is located 10 minutes from the central business district (CBD) and directly connected to Labrador Park MRT station.

CBD alexandra habourfront

It attracts tenants who wish to be located near the CBD without having to pay sky-high rents. The Alexandra/HabourFront area offers rents which are 28.8% and 8.5% lower than Grade-A and Grade-B Core CBD offices respectively. Average office rent at MBC is $6.14 per square foot per month.

alexandra habourfront rents

Historically, prime office rents in Alexandra/HabourFront are also less volatile resilient than Grade-A and Grade-B Core CBD office rents.

5. Exposure to growing business park segment

Mapletree Business City is the closest business park to the CBD and the growing demand for business parks is evident in MNCs like Google, American Express, HSBC, Nike, SAP, Samsung and Unilever relocating from the CBD to MBC.

business city rent

Singapore business park rents are also extremely stable compared to office rents and there is no new business park supply expected until 2020. Average business park rent at MBC is $5.88 per square foot.

6. Committed occupancy rate is at 99.0%

MBC occupancy

MBC is a large property with a total net lettable area (NLA) of 1,708,218 square feet comprising 420,544 square feet in offices and 1,287,674 square feet in the business park. Even so, occupancy levels as at 30 April 2016 is 97.8%, while the committed occupancy rate is 99.0%. Weighted average lease expiry is 3.5 years and 97.5% of leases have average annual rental step-ups of around 3%.

7. Acquisition to be financed by a combination of debt and equity

MBC’s total acquisition cost of S$1.86 billion will be funded by loan facilities of up to $920 million and an issue of up to 795 million new units via a private placement to institutional investors and preferential offering to existing unitholders.

8. Some unitholders had questions and concerns

One unitholder felt that the acquisition was not in the interest of minority unitholders. He agreed that MBC was a good asset but thought that the acquisition price was too high and, as a result, the DPU accretion too low. He questioned why the management had to make the acquisition at this point in time when the office sector is soft and suggested that the deal might be better suited when the office sector improves.

Chairman Tsang Yam Pui expressed surprise at the unitholder’s view as many investors have long asked when MBC would be acquired by MCT. Tsang explained that an asset of MBC’s quality is hard to find and would be very expensive in the open market. The fact that MCT is able to acquire the property at a price that allows for DPU and NAV accretion is a positive for unitholders. The property would also give good organic growth in the long run. The chairman also said that a good time to acquire a good asset is when you can get it at the right price. In the case of MBC, MCT is already acquiring it a discount to the valuation set by two independent valuers.

Another unitholder asked if the supply of nearby office properties like Alexandra Technopark and Fragrance Building (formerly NOL Building) would affect MBC. CEO Sharon Lim replied that in the next four years, only 4% of office leases at MBC are expiring in FY2018/19. Furthermore, the quality of an asset like MBC is a world of difference compared to the rest.

A unitholder jokingly asked if the sale of MBC was being ‘forced’ onto MCT by its sponsor Mapletree. The Chairman reassured the unitholder that the acquisition is a case of a willing buyer and a willing seller. But he noted that the deal is a related party transaction which is why the management has gone through the procedure of obtaining independent valuations and the transaction scrutinized by its independent directors.

9. The proposed acquisition was voted through

The proposed acquisition of MBC was approved at the EGM with 95.51% of votes in favor of the resolution. MCT has since announced they plan to raise $529.1 million from the private placement and $515.2 million from the preferential offering.

Current unitholders are entitled to 17 new units for every 100 existing units at an issue price of $1.42 per unit. The issue price is an 8.4% discount to MCT’s last traded price of $1.55 (as at 1 August 2016). Unitholders can also apply for excess units. Books closure date is 3 August 2016 at 5:00 p.m.

Liked our analysis of this AGM/EGM? Click here to view a complete list of AGMs we’ve attended »

(Photo and charts: Mapletree Commercial Trust)

Adam Wong is the editor-in-chief of The Fifth Person and author of the national bestseller Lucky Bastard! which made the Sunday Times Top 10 Bestseller's List in 2009 and Value Investing Made Easy which made the Kinokuniya Business Bestseller's List in 2013. In 2010, he appeared on U.S. national television on the morning show The Balancing Act. An avid investor himself, Adam shares his personal thoughts and opinions as he journals his investing journey online.

3 Comments

  1. victor

    August 2, 2016 at 10:20 am

    Current unitholders are entitled to 17 new units for every 100 existing units at an issue price of $1.42 per unit. The issue price is an 8.4% discount to MCT’s last traded price of $1.55 (as at 1 August 2016). Unitholders can also apply for excess units. Books closure date is 3 August 2016 at 5:00 p.m.

    You sure the closing date is 3 August 2016 at 5:00 p.m? i have yet to receive the preferential offering notification.

  2. Pingback: 12 things I learned from Mapletree Commercial Trust 2016 AGM – The Fifth Person

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