MCT – DBSV

Waiting for the next big bang

• 4Q13 results slightly ahead of our expectations
  
• Organic growth outlook robust; further upside from acquisitions
  
• BUY, TP raised to S$1.53
  

Highlights

Strong end to FY13; slightly ahead of our expectations. Mapletree Commerical Trust’s (MCT) 4QFY13 revenue and net property income (NPI) rose by 22% and 23% y-o-y, to S$60.7m and S$44.2m respectively. Growth was largely driven by strong rental reversions at Vivo City and PSA Building, supported by improved occupancy levels of 97.7% (vs 94.6% a year ago). Meanwhile, the quarter also saw partial contribution from Mapletree Anson, which was acquired on 4 Feb 13. Distributable income came in at S$34.7m (+20% y-o-y), translating to a DPU of 1.737 Scts (+12% y-o-y).

Optimized balance sheet. With revaluation of close to S$196m made at the year end, MCT’s NAV increased by 11% to S$1.06. Gearing, as a result,fell slightly to 40.8%. Financial metrics remain healthy with an interest cover of 5.4x, c70% of interest costs is fixed, and weighted average lease expiry is 3.3 years.

Our View

Organic growth a main driver for FY14. MCT’s portfolio achieved a robust uplift in rental revenues for FY13 with strong retention rates of c83% (retail) and 65.2% (office). Notably, revenue from VivoCity increased by c6% y-o-y, supported by a 33% uplift in fixed rents while its office leases, namely PSA Building (PSAB) were signed at 44.3% higher rates. Looking ahead, the outlook remains robust coming from (i) the trust has 17.9% of its income up for renewal, of which a majority will be leases at VivoCity. The manager has plans to continue to remix the mall’s tenant base to maintain its appeal, and (ii) full year contribution from Mapletree Anson, which offers further upside when its leases are up for renewal in the coming year.

Recommendation

BUY, TP raised to S$1.53. While we believe that the current price fully reflects the positives of the current portfolio, we remain optimistic that given the significant pipeline from its sponsor, acquisitions will remain a key feature for MCT. A medium term target remains Maple Business City, which will provide a solid platform for MCT to grow to the next level. We have assumed S$1bn worth of acquisitions in FY15F (@ 5.25% yield, with an equity/debt funding ratio of 60%/40%, keeping gearing constant).