MCT – DBSV

Acquisition stars aligning

• In line, 6M DPU makes up 49% of our FY13 numbers
  
• Strong operational and financial metrics, supportive of new acquisitions
  
• Maintain BUY, TP raised to S$1.35 as we roll forward our numbers and factor in S$1bn of acquisitions
  

Another sterling quarter. MCT reported 2Q gross revenue and NPI growth of c.15% y-o-y each to S$51.8m and S$36.5m respectively. The better performance was driven by higher rental income from improved occupancies and better rental rates across all properties. As a result, DPU came in at 1.546Scts and 1HDPU makes up 49% of our full year forecast.

Organic growth drivers are still in place. Looking ahead, forward growth will be driven by positive rental reversions at VivoCity and improving pre-commitments at ARC (75.9% vs 60% a quarter ago). Meanwhile, average rent for VivoCity continued to trend up nicely to >S$11psf/mth. While occupancy cost has risen to 17%, it is still lower compared to city malls (c.20%). Hence, we believe the trust can continue to drive rents, albeit at a more modest pace, on the back of increasing shopper traffic and higher tenant sales.

Acquisitions likely to be the next catalyst. Gearing level is at 37.7% with only S$122m worth of refinancing due in April 2013. With the trust trading at 1.3x P/Bk NAV and an implied yield of 5%, we believe it has become a more effective platform for new acquisitions that can be funded through a mix of debt and equity. We now assume S$1bn of acquisitions @ 5.25% yield in FY13F (equity: debt ratio of 60:40), raising our FY14F estimate by 2%.

Maintain Buy. We continue to like MCT for its defensive nature backed by quality assets and healthy financial metrics. We believe a re-rating catalyst could come from new acquisitions such as Mapletree Business City and Mapletree Anson. As we roll forward our number and factor in S$1bn worth of acquisitions, we raise our target price to S$1.35.