MCT – CIMB

Strong 2H13 in the bag

Having negotiated >90% of its leases expiring at VivoCity in FY13 and booked strong committed rental reversions, a solid 2H13 appears to be in the bag. Stronger-than-peer operating stats continue to bode well while accretive acquisitions could just add icing to the cake.

2Q/1H13 DPUs were broadly in-line, forming 25/49% of our FY12 estimate. Expecting a back-end loaded FY13 as committed rental reversions kick in, we nudge DPUs higher. Coupled with a lower discount rate of 6.9% (prev. 8.1%), we raise our DDM target price. Maintain Outperform.

Strong 2H13 in the bag

We expect greater DPU uplifts in 2H13 when committed rental reversions flow through in 2H. 2Q13 NPI and DPU were up 15% and 16% yoy, respectively, thanks to positive rental reversions at VivoCity and ongoing take-ups at ARC and PSAB office. VivoCity remains in a state of pink. Management has negotiated >90% of leases expiring in FY13, booking a strong 33.4% uplift in fixed rents and having just 2% of leases remaining for 2HFY13. Operating stats were healthy, with yoy growth in shopper traffic (+8.4%) and tenant sales (+5.6%) a tad stronger than that in 1Q13 and peers. Occupancy cost pre-rental reversions kicking in were healthy at 17% on rents of about S$11+psf. PSAB office and ARC also made progress, with both booking stronger occupancy and commitments. PSAB office particularly saw strong rental reversions (albeit on a low base), on signing rents of about S$7+psf.

Capital management

Management refinanced S$160m of borrowing due in FY14 with a fixed rate note due 2020. This lengthened weighted average debt maturity to 2.9 years from 2.1 years back in 1Q, without significant cost increase.

Acquisitions?

With overall cost of capital dropping as equity yields compress and borrowing cost remaining low, ease of an accretive acquisition has risen. We understand that pre-commitments from Mapletree Business City has risen above 90%, though physical occupancy remains <90% as some tenants have yet to move in.