MCT – CIMB

Organic growth

3QFY12 was boosted by stronger year-end GTO rentals at VivoCity. With strong 25% rental reversions for committed retail leases and contributions from the newly-opened ARC, MCT’s organic growth should be one of the strongest among S-REITs.

3Q/9M12 annualised DPU is slightly above consensus and our estimates, at 27/78% of our FY12 on lower borrowing costs. We raise DPU by 2-4% on reduced borrowing costs and thus our DDM target price (disc. rate: 8.6%). Maintain Outperform.

Robust rental reversions at VivoCity

We expect strong rental reversions at VivoCity, backed by strong shopper traffic (+15%) and tenant sales (+9%) and an under-rented portfolio. 3QFY12 NPI grew 6% qoq and 9% yoy on higher passing rents during renewal and year-end GTO rentals at VivoCity. Positives were stronger YTD rental reversions of 25% (over preceding rentals, 2Q: 20%) for its retail leases as occupancy remained nearly 100%. Substantial leases will be due in FY13 and management has started discussions as early as 10 months ahead of expiry, noting good demand from existing and prospective tenants.

Maiden contributions from Alexandra Retail Centre

Its newly-opened ARC (in mid-Dec 11) contributed to 3QFY12. While occupancy and commitments were fairly low at 36% and >55% (of NLA) respectively due to its earlier commencement, we expect these to rise with management in close discussions with several prospects.

Stable office performance

The completion of ARC has added 15k sf to MCT’s office portfolio. Excluding this, occupancy at PSA Building has climbed to 95.1% from 92.7% the last quarter. We understand that while tenants are increasingly cautious, asking rents are still stable. The commencement of ARC could provide additional impetus for the leasing momentum at PSA Building.