3 Things Investors Should Know About Mapletree Commercial Trust’s Latest Acquisition Plan

Mapletree Commercial Trust (SGX: N2IU) is one of the largest commercial REITs (real estate investment trusts) in Singapore’s market.

With a market capitalization of more than S$3.1 billion, Mapletree Commercial Trust is the owner of four properties in Singapore. The properties include VivoCity and Merrill Lynch HarbourFront.

The REIT announced earlier today that it plans to acquire its second asset since its listing in 2011. The asset in question is Phase One of Mapletree Business City in Singapre, which is located in the Alexandra precinct. The seller is Mapletree Commercial Trust’s sponsor, Mapletree Investments Pte Ltd.

Here are three important things for investors to know about the deal:

1. Cost

The purchase price of the property would be S$1.78 billion, which is lower than a 31 May 2016 valuation of S$1.822 billion done by Knight Frank. But when all the acquisition-related fees are added into the mix, the total cost is expected to rise to S$1.86 billion.

Mapletree Business City currently has a net leasable area of 1.7 million square feet. At the purchase price, the property is thus valued at S$1,042 per sqft. The target asset currently has an occupancy rate of 97.8% and a weighted average lease to expiry of 3.5 years.

2. Accretive acquisition

The deal is expected to be positive for Mapletree Commercial Trust’s unitholders, according to the REIT manager’s number crunching.

The calculations have projected an increase in the REIT’s distribution per unit for the six months ending 31 March 2017 from 4.14 cents to 4.27 cents. Assuming the acquisition’s completed on 31 March 2016, Mapletree Commercial Trust’s net asset value on that date is also projected to increase by 2.1% from the actual S$1.28 per unit to the hypothetical S$1.31.

The numbers are based on the assumption that 46.3% of the acquisition’s price tag would be funded by debt while the remaining portion would come from equity (the issue of new units).

In conjunction with the acquisition, Mapletree Commercial Trust has proposed an exercise to issue up to 795 million new units of itself. The REIT’s issue of units may involve a private placement to select investors or a non-renounceable preferential offering to existing unitholders.

3. Reason for acquisition

Mapletree Commercial Trust has cited a number of reasons for wanting to purchase the property. Apart from the positive accretion to unitholders, it also helps reduce concentration risk in its portfolio.

If the acquisition goes through, VivoCity’s importance to the valuation of the REIT’s property portfolio will decrease from 59.8% to 42.1%. A similar dynamic will also happen in terms of net property income. VivoCity currently accounts for 66% of Mapletree Commercial Trust’s net property income; this percentage is projected to fall to 45.4% with the acquisition of Mapletree Business City.

It’s worth noting that the acquisition is not a done deal at the moment. An extraordinary general meeting would be held on 25 July 2016 for Mapletree Commercial Trust’s unitholders to decide if they would want to go ahead with the deal.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Stanley Lim doesn't own shares in any companies mentioned.