MCT – CIMB

A difficult year to replicate

With strong rental reversions from VivoCity this year, we believe that MCT has set a high growth benchmark in FY13 that will be difficult to replicate in FY14. Trading at 1.4x P/BV and forward yields of 4.7%, further upside will need to come from major AEIs and acquisitions.

4QFY13/FY13 DPUs came in slightly above our and consensus expectations, forming 27/102% of our FY13 forecast. The variance is due to the earlier completion of its office acquisition. We tweak our DPUs and DDM target price (discount rate: 6.9%) higher for stronger VivoCity margins but maintain Neutral. Re-rating catalysts include accretive acquisitions.

A difficult year to replicate

We expect upside from rental reversions at VivoCity to peter out in FY14. MCT performed well in 4Q. 4Q DPU was up 12% yoy, thanks to positive rental reversions off a lumpy lease expiry profile and higher occupancy on existing assets. DPU was up 4% on a qoq basis.

VivoCity, a star performer, remains in the pink of health as it booked a 33% increase in fixed rents, while shopper traffic and tenant sales grew by 3.0% and 3.7% respectively. Coupled with healthy occupancy cost of ~16%, this should support positive rent reversions, though the increase should peter out with a more moderate 15% of retail leases expiring in FY14 vs. 33% in FY13.

Further leasing progress for other assets

Further leasing progress was made at PSAB Office and ARC, taking their committed occupancy to 100% and 81.9% respectively. The former benefitted from an expansion in demand from existing tenants, while ARC could see improvements as footfall and tenant sales pick up.

Maintain Neutral

With strong rental reversions and acquisition accretion, we believe that MCT has set a high growth benchmark in FY13 that will be difficult to replicate in FY14. Trading at 1.4x P/BV and forward yields of 4.7%, we think that positives are largely priced in and further upside will have to come from major AEIs and acquisitions.