MCT - MNACT Proposed Merger New Option - Full Cash

I have previously written about the proposed merger between Mapletree Commercial Trust (MCT) and Mapletree North Asia Commercial Trust (MNACT) here.

In that post I also included some calculations to gauge which was the best option for me based on the original two options offered by MCT namely

 

Option 1: Cash + Scrip

 

Option 2: 100% Scrip

 

At that point of writing, option 1 was the best for me as it offered the highest cash value then.

 

Today, a third option has been given to MNACT unitholders which is

Option 3: 100% Cash

More details can be found here.

With option 3, MNACT unitholders can receive $1.1949 for each MNACT unit he or she possesses.

This is clearly the best option for me right now. Based on my holdings of 4,000 units of MNACT and the current MCT share price of $1.88, the return in terms of cash value for the three options are as follows.

Option 1: $4,531.57

Option 2: $4,484.18

Option 3: $4,779.60

Option 3 would give me a return of around 27.5% including dividends collected over the years. Not too bad I would say.

For now my plan is to monitor the share price of MNACT closely for the next couple of months. If the open market price goes above $1.1949 I would likely offload my MNACT units in the open market.

At current point of writing, MNACT is trading at $1.18 and testing $1.19.

MCT is trading at $1.88 after opening at $1.95.

Proposed Merger of MCT & MNACT - Most Beneficial Option

On 31st December 2021, Mapletree Commercial Trust (MCT) and Mapletree North Asia Commercial Trust (MNACT) jointly announced for a proposed merger between the two trusts.

The new combined entity named Mapletree Pan Asia Commercial Trust (MPACT), will become the 7th largest Reit in Asia by market capitalisation.

 

 

More details can be found here.

Now there will surely be supporters and detractors from both camps - MCT and MNACT, for the merger and rightly so.

In every merger there will be pros and cons. In this case I've been seeing a lot of negative feedback from MCT unitholders and some from MNACT unitholders as well.

The main grouse for the former is that the merger will increase MCT's gearing and 'lower' down the quality of their assets.

For MNACT unitholders, the most common feedback I've seen is that their DPU will be lowered upon merger.

For myself I have a small holding of MNACT and none of MCT. My current stand is neutral on the proposed merger.

However to help myself make the best decision regarding the merger, I did some quick calculations and arrived at some conclusions as follows.

Calculations

MCT share price at point of writing: $1.85

 

MNACT share price at point of writing: $1.09

 

My current MNACT holdings: 4,000 units

 

If I go for Option 1, I will receive: 2,003.6 MCT units + $764.80

If I go for Option 2, I will receive: 2,385.2 MCT unit

If I go for Option 3, I will receive: 100% cash per market price

 

So to see how the various options work out for me, I did the calculations based on several MCT and MNACT share price scenarios.

 

Conclusions

 

Based on the current MCT and MNACT share price of $1.85 and $1.09 respectively, the best option for me would be Option 1 in which I will have an equivalent amount of $4,471.45.

 

Pros: Highest value received

        No transaction fees

        Still eligible for MNACT's coming distribution and any clean up distribution

Con: Will have odd lots of MPACT in future

If MNACT share price moved up to $1.14 like it did earlier this week, Option 3 appears to be the best option for me as that would give me the highest immediate value.

 

However by selling my holdings I will miss out on the coming distributions. So need to factor this in when details are available and see how it measures against Option 1.

Pros: Highest value received if MCT stays below $1.89

        No odd lots if I reinvest into MPACT

Cons: Transaction fees

         Not eligible for MNACT's coming distribution and any clean up distribution

 

If MCT share price moved above $1.89 and MNACT share price moved back to $1.14 or above, similar calculations can be done to see which option makes more sense.

For now we have at least until May 2022 to decide.

Dividend Counters with Potential Growth

I have always used fundamental analysis be it the top-down or bottom-up approach for any addition of dividend counters with good growth potential to my income portfolio. 

Although it works well so far, I have been wanting to qualify my analyses with a mathematical model to justify them.

Maybe it's due to my engineering and science background. I don't know.

I found what I wanted some time last year from a fellow member on one of the online platforms that I frequent.

Apparently there is a finance formula called Dividend Yield + Expected Capital Growth (DYG).

This formula uses the expected annual dividend, dividend payout ratio and ROE as the metrics for gauging whether a particular counter is a good income-paying one with long term growth.

I created a spreadsheet with formulas for easy calculation as shown below.

 

The ROE is calculated by dividing the EPS by the NAV per share.

The dividend payout ratio is calculated by dividing the dividend per share by the EPS.

I obtained the EPS, dividend amount and NAV from the companies' annual and quarterly reports instead of third party websites for accuracy sake. Just a personal preference.
 

Coming from a non-finance background I have never heard of this formula prior to this. And being a skeptical person (guess it's just my nature, I don't usually take things at face value.), I did some searches online but couldn't find any results on this formula.

So I did the next best thing. Using the formula on some counters in my watch list and monitor them for couple of months, including their latest quarter reports.

The counters identified back then as good counters (DYG >10%), largely performed well so far.

So I decided to do a new round of calculations for selected counters in my watch list today.

The latest DYG results are as follows.

The top 3 counters I've identified in my previous round of calculations some months back are still the same with this latest set of calculations.
 

I also did a little stress test to mirror the current macro situation by factoring a 30% reduction in expected dividends.

Interestingly the DYG value of some counters went up while the others decreased. There is no fixed pattern.

I'm still trying to analyse why but one thing for certain. Even after factoring the 30% dividend cut into the calculations, the top 3 counters are still the same. The change in the respective DYG value is insignificant, not even 1% difference.

Lastly I have appended below the raw data for your reference if it's helpful to you.

Most investors who have read enough annual reports will roughly know where to find data such as EPS and NAV.

Nonetheless it is still quite a chore to download the various AR and run through the pages for so many companies. I wouldn't wish anyone else to do it if you have a choice.

So here it goes.

Conclusion

Personally I find the DYG method complementary to my current stock selection methodology. Moving forward I will probably add it as one more step as a justification to my FA.

For sharing purpose I have summarised my methodology as follows.

1. Use stock screener to sieve out potential counters. Personally I use P/B, P/E and debt/equity ratios, net profit and dividend yield.

2. Use FA to narrow down the counters.

3. Use DYG method as a double check.

4. Purchase counter(s).

5. And enjoy the passive income.

P.s. Decided to use another font type and font colour for this post. Please feel free to let me know if it's better for viewing compared to previous posts. Thanks.

April 2020 Updates

Apr 2020

Portfolio Value after market close

S$115,793.56

Wifey's Portfolio Value after market close

S$77,708.56

Purchase

None

Sold

None

Dividends

1) Mapletree North Asia Commercial Trust (MNACT) @ $42.80

Short-Term Transactions

1) Intraday trade on 10,000 units of DLC SG5xShort SIA

Summary

Received a total of $42.80 of dividends this month. 

Portfolio value increased naturally with market trend but nothing has been added to my income portfolio this month. 

As compared to March, this month is relatively quiet for me. 

Queued for MCT and Suntec Reit but the order didn't get filled.

Will continue to monitor the market for further additions to portfolio. Funds haven't been fully deployed yet. 

Still of the opinion that the market is bearish. Recent few days of uptrend seems to be driven by short term positive news. 

On the job front, business has slowed to a trickle. Projects and enquiries have literally stopped. 

I'm taking this window to get a relevant certification for my company which will comes in handy when market recovers. 

The number of assistance measures from the government will help businesses in the near term. I'm hopeful my company will qualify for the Job Support Scheme (JSS).