MNACT expands investment mandate, acquires 50% stake in Seoul office building

MAPLETREE North Asia Commercial Trust (MNACT) is acquiring a 50 per cent stake in Pinnacle Gangnam, a 20-storey freehold office building in Seoul's Gangnam business district in Korea, for a price tag of 228.9 billion Korean won (S$267.6 million).

The acquisition follows MNACT's announcement that it will expand its investment mandate to include South Korea after identifying the country as a "scalable new market" with "attractive investment characteristics".

The acquisition, slated for completion by year's end, is believed to be an "attractive value proposition" in terms of distribution-per-unit (DPU) accretion and net property income (NPI) yield, said the Reit.

MNACT's managers said the acquisition is expected to raise the DPU by 0.4 per cent to 7.15 Singapore cents on a pro-forma FY19/20 basis.

In a regulatory filing on Friday, MNACT said it had entered into a unit sale-and-purchase agreement with Picanto Pte Ltd and Project Hudson Ltd to acquire the property.

Following the transaction, Mapletree Investments, which is also MNACT's sponsor, will hold a 49.95 per cent interest in the building via its indirect wholly-owned subsidiary Gangnam Asset Pte Ltd; an unrelated third-party investor will hold the remaining 0.05 per cent stake. Mapletree Investments' stake is also subject to a right of first refusal granted to MNACT under the unitholders' agreement, which could potentially become an "investment opportunity" for the Reit in the future. (see amendment note)

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The total acquisition cost comprises the aggregate consideration of approximately 226.0 billion won, the estimated professional and other transaction fees and expenses of approximately 0.7 billion won, as well as an acquisition fee of S$2.6 million. The total acquisition is expected to be funded by debt.

The property, which reportedly offers Grade-A building specifications, has a gross floor area of 44,444 sq m. It also has an occupancy rate of 89.6 per cent and a weighted average lease expiry of 2.8 years by monthly gross rental income (GRI) as at end-July.

The building's five largest tenants include Qualcomm, Huvis, JustCo, Ralph Lauren and Echo Marketing, all of which collectively represent 55.4 per cent of the property's monthly GRI as at end-July.

MNACT said that some 97 per cent of the property's leases have built-in annual rental escalations of approximately 2 per cent to 3 per cent, which provide "stable and reliable revenue growth" over the lease terms.

The Reit's managers also believe that there is potential to increase the occupancy rate of the property progressively through active leasing efforts, benefiting from the low vacancy rates and limited new supply of office space within the district.

The acquisition is set to enhance MNACT's geographical and income diversification, as well as provide greater stability in the long term. Upon completion of the transaction, the Reit's portfolio will comprise 12 properties, with no property constituting more than 45 per cent of the portfolio's NPI.

Post completion, the property value of the Reit's portfolio will also be bumped up to S$8.53 billion on a pro-forma basis, representing a 3 per cent increase from the current value of S$8.27 billion. The property value contribution of MNACT's largest asset, Festival Walk in Hong Kong, will be further reduced to 60 per cent from the current 62 per cent.

Hiew Yoon Khong, group chief executive officer of Mapletree, said: "Despite the current challenging global business landscape, we still see opportunities, and in this case, in the Seoul office market."

MNACT units closed flat at 89.5 Singapore cents on Friday prior to the announcement.

Amendment note: A previous version of the article incorrectly stated that Gangnam Asset Pte Ltd would acquire a 50 per cent interest in the property. The company has clarified that Gangnam Asset would in fact hold a 49.95 per cent interest while a third-party investor would acquire the remaining 0.05 per cent stake.