MCT – DBSV

Reversionary engine still running

• 1Q13/14 results in line with estimates at 25% of our forecast

• Vivocity’s reversions and retention rates remain robust

• Maintain BUY at S$1.12 TP

Highlights

1Q13/14 DPU of 1.537 Scts in line with estimates. Mapletree Commercial Trust’s (MCT) gross revenues and net property income were at 6.9% and 9.5% respectively, ahead of the prospectus forecast but are in line with our forecast. The growth was largely driven by positive rental reversions at VivoCity, a 12% step up rental at Merrill Lynch Habourfront and the additional contribution from Alexandra Retail Centre (ARC). As a result, distributable income had come in 20.7% higher than forecasted, at S$28.7m, which translates to a DPU of 1.537 Scts, forming c.25% of our fullyear forecasts. On a sequential basis, performance had remained relatively stable, with a slight decline in net property income margins due to rising utilities cost.

Our View

Business as usual. Vivocity’s performance had remained robust, achieving higher occupancies of 99.9% on a committed basis in 1Q13. About 50% of the leases that are expiring in FY13 have been renewed at 37.4% higher than previous rents, supported by high retention rates of 74.6%. Monthly rents now touched S$11 psf vs the S$10.62 achieved last year. While shopper traffic and tenant sales at Vivocity had risen by a smaller 6.5% and 2% clip y-o-y, this was in part due to the tenant fitout period for some tenants. We believe that should improve sequentially with the opening of new shops. Meanwhile, the PSA Building’s committed occupancy held steady at 97.9%, with an incremental 15ksf of office space having been leased out to Mapletree Investment. At the same time, two leases were renewed at 39.5% higher than preceding rents as they revert to market rents. Alexander Retail Centre (ARC)’s committed occupancy rate has reached 62.5%.

Recommendation

Maintain BUY at S$1.12 TP. We continue to like MCT’s defensive nature backed by quality assets. There is no refinancing due this year and gearing has moved to 37.7%, in line with the bigger cap reits. While we do not see imminent acquisitions from the ROFR pipeline, including Mapletree Business City, we believe any re-rating catalyst would likely hinge on that and its accretion. Our DCF-backed TP of S$1.12 offers total return of close to 13%.