Giving Mapletree Commercial Trust a miss

I had a quick look at the upcoming Mapletree Commercial Trust (MCT) IPO to see if it is of any interest. Sad to say that I will give it a miss because I find the other REITs in the current market more attractive.

MCT is a Singapore REIT that will be established with an objective of investing in a diversified portfolio of income-producing real estate used primarily for office and/or retail purposes, whether wholly or partially in Singapore, as well as real estate related assets. It will start off with Vivocity, Bank of America Merrill Lynch HarbourFront and PSA Building in its portfolio.The sponsor has also mentioned that they are open to injecting assets like Mapletree Business Centre (MBC) and The Comtech into the REIT when the time is right. The distribution yield ranges from 5.47% to 5.92% for this financial year, depending on the IPO price.

The following are some of the areas that I am not comfortable with in this IPO:

1. The objective of MCT basically has a catch-all phrase, and it seems like they will inject anything that is real estate related. The perception that I had from this objective is that the REIT has no specific purpose, other than being a vehicle for Mapletree for injecting their assets.
    
2. It seems like a high initial IPO price will not increase the cash reserves of the REIT. I believe this is similar to the Mapletree Industrial Trust that I looked at previously. Based on the prospectus, if the MCT IPO price is on the high side, the difference in cash will be used to top-up the amount used to to inject Bank of America Merrill Lynch HarbourFront and PSA Building into MCT.
   
   I personally believe that is not very fair as I would expect it to be put in the cash reserve so that they can use it for acquisitions or asset enhancements.
    
3. Vivocity will contribute more than 75% of the income generated for MCT even through the next FY. This makes the REIT very dependent on Vivocity for its revenue source. Furthermore, the debt gearing will be 39% for MCT post-IPO, one of the highest among all the REITs in the SGX Market. Although it is stated that MCT will have about $50 million in cash, but I believe the cash is needed because PSA Building is currently under renovation and payment is required for the renovation works.
    
4. With a 39% debt gearing, how can they afford to inject MBC or any other yield accretive assets into MCT? The answer is very difficult as most REITs keep their gearing below 40%. I did a rough calculation of MBC's value based on an average of PSA Building's psf value and it amounted to more than 1.7 billion dollars. Private placement or rights issue? Only they will know but either case, the dilution of shareholding is quite substantial due to the amount.
    
5. Last but not least, I believe there are a number of REITs like Starhill Global or Ascendas REIT that are giving yields that are above 6%, with lower gearing than MCT. Lower gearing means more opportunities for the REIT to acquire yield accretive assets before they are required to raise capital.
   
   After all, do not forget that REITs is mostly about the distribution yields.

All in all, I will give it a miss like the industrial trust. Maybe I will take a look again after MBC is injected into MCT.