MCT – DBSV

Southern Belle

• First mover into Singapore’s Southern growth corridor

• Strong organic expansion with deep acquisition potential

• Recommend Buy, TP $1.05 translates to 26% total return

Strong growth play in the Southern corridor. Mapletree Commercial Trust (MCT) stands out as a key beneficiary of the growth potentials in the Southern corridor. Having a first-mover presence will allow the trust to leverage on the long-term benefits of the redevelopment and rejuvenation of the Harbourfront-Alexandra-Tanjong Pagar locality as well as Pulau Brani into a new waterfront city. These will have a positive knock-on effect on property values and rentals in the area. Recent addition of iconic landmarks such as the Sentosa Integrated Resort boosts tourist arrivals while a growing office and residence population will enable the trust to benefit from rising sales and shoppers’ footfall.

Strong organic growth, significant and visible acquisition growth potential. As VivoCity, Singapore’s largest mall moves into its first rental renewal cycle, we anticipate the trust to enjoy strong rental pricing ability given the robust double-digit growth in shoppers’ traffic and retail sales psf since the opening of the Sentosa IR. In addition, upgrading works at PSA Building (PSAB) and development of the Alexandra Retail Centre (ARC) will enable the trust to capture the growing working population once completed by end 2011. MCT has a ROFR for a pipeline of properties from its Sponsor, which could potentially triple its initial portfolio’s NLA. In our view, the recently completed Mapletree Business City located in the Harbourfront-Alexandra Precinct, could be the maiden purchase.

Recommend Buy, TP $1.05. The investment case for MCT is its first mover advantage into the Southern growth corridor and a very visible acquisition pipeline. The stock is currently trading at FY12 and FY13 yields of 5.8-6.4%. Our DCF-backed TP of $1.05 translates to an absolute total return of 26%. Key risks include location and asset concentration risks as well as susceptibility to general economic climate, which will affect tourism and consumption patterns in Singapore’s relatively open economy.