MCT – CIMB

Stronger than expected

MCT’s 3QFY13/14 revenue rose by 22.4% yoy and DPU rose by 11.9% yoy. 9MFY14 DPU was slightly better than expected at 78% of our FY14 forecast due to strong rental reversion and rising occupancy. With further room to grow through rental reversions and, in part, riding on the recovery trend in the office market, we raise FY14-16 DPU by 2% and upgrade our rating on MCT to Add from Hold. Our slightly higher DDM-based (discount rate: 8.4%)

target price is S$1.31.

Strong organic growth

Mapletree Commercial Trust (MCT) reported 3QFY14 revenue of S$68.4m (+22.4% yoy) and DPU of 1.865 Scts (+15.5% yoy), mainly driven by the 38.7% rental uplift in leases renewed at VivoCity. Similarly, the rising occupancy in the PSA Building office to 100% and in the Alexandra Retail Centre (ARC) to 97.4% has attributed to the strong earnings growth. With 1.8% of retail space and 1.2% of office space up for renewal in FY13/14, we are confident that the high portfolio occupancy of 98.7% will be maintained as we step into the new financial year. In addition, with 15.4% of retail space and 7.3% of office space up for renewal in FY14/15, we expect MCT to benefit from the strong positioning of VivoCity and the recovery in the office market.

Well-shielded from the rising interest rates

During the quarter, MCT secured term loan facilities of S$397.6m to refinance all of its debts (S$338.6m) due in FY14/15 and some of its debts due in FY17/18. Although its gearing is relatively high at 40.8%, we seek comfort in MCT’s accessibility to loans and the fact that the next tranche of debt is only due to be refinanced in FY15/16. The all-in interest cost at the moment stands at 2.18% (unchanged from a quarter ago), with 74.5% of its total debt under a fixed rate. With these structures in place, we expect MCT to be well-shielded from any hikes in interest rates.

We upgrade to Add

On the back of a stable balance sheet, room for further organic growth and the avenues to tap into the recovering office market, we raise FY14-16 DPU by 2% and upgrade MCT to an Add rating with a higher DDM-based target price of S$1.31.