MCT – CIMB

Continue to impress

MCT’s 4QFY3/14 revenue rose by 12.9% yoy and DPU rose by 12.4% yoy. FY14 DPU was slightly better than expected at 104% of our forecast due to strong rental reversion and the acquisition of Mapletree Anson. We raise FY15-16 DPU by 3-5% on the back of the strong results, coupled with the expectation of further room to grow through rental reversions and, in part, riding on the recovery trend in the office market. We maintain an Add rating on MCT with a slightly higher DDM-based (discount rate: 8.4%) target price of S$1.33.

Another stellar quarter

Mapletree Commercial Trust (MCT) reported 4QFY14 revenue of S$68.6m (+12.9% yoy) and DPU of 1.953 Scts (+12.4% yoy), mainly driven by the 37.6% rental uplift in leases both renewed and re-let at VivoCity. Meanwhile, the occupancy for the retail portfolio grew to 98.6% (from 97.5% in 4QFY13), mainly attributed to the higher occupancy at ARC. During the year, both shopper traffic and tenant sales grew by 1.4% and 5.6%, respectively. The occupancy cost at VivoCity remained largely unchanged at 17%. Similarly, the office portfolio also posted good rental reversion of 19%, with occupancy of the office remaining steady at 97.9%.

Well shielded from rising interest rates

Compared to a year ago, the leverage ratio dipped slightly to 38.7% (from 40.9%). Although this is higher than the industrial average of 31.8%, 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 2.17% (2.18% in 3QFY14), with 64.3% 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 maintain an Add rating on a stable outlook

Looking ahead, with 16.3% of retail space and 7.5% of office space up for renewal in FY14/15, we are confident that the high portfolio occupancy of 98.2% will be maintained, particularly on the back of the strong positioning of VivoCity and a stronger office rental market outlook. We maintain our Add rating with a slightly higher target price of S$1.33.