MCT – DBSV

Ride the southern wave

• Boost from VivoCity’s healthy rental reversion, opening of ARC and PSAB’s higher occupancy

• Gearing moved down in line with peers with no refinancing needs

• Maintain BUY at an unchanged TP of S$1.12

Anticipating another good wave. Performance for VivoCity, the largest asset in Mapletree Commercial Trust’s (MCT) portfolio continues to exceed expectations. We noted that the spike in visitors to Universal Studios in the last few quarters and the opening of final 12 new MRT Circle staions since October 11 have had a positive impact on VivoCity’s footfall and tenant sales. Given its exposure of up to 18% gross turnover (GTO) revenue component (based on FY12 gross revenue), we believe VivoCity is the only mall that has the biggest leverage to another year of strong visitors to Resorts World Sentosa as the hotels and the West Zone open progressively.

Moving up the tracks. Office portfolio occupancy has reached a high of 98.2% with the incremental 15ksf of office space at PSA Building (PSAB) leased out to Mapletree Investment- another quality tenant. We visited Alexander Retail Centre (ARC) recently and were pleased to see that the newly minted mall, with popular F&B operators, are drawing good lunch time crowds. Committed occupancy rate has crossed 60% and should filter down to FY13F earnings as tenants opened progressively.

The wild card. With Mapletree Business City (MBC) still operationally ramping up, we believe an acquisition is unlikely to be on the cards in the immediate term. Nevertheless, we conducted a scenario analysis to assess the impact of the potential acquisition on DPU. In our analysis, we assume an acquisition price of MBC is S$1.25-1.58b or NPI yield of 5-6%, we estimate that FY14F DPU could see a –3% to +5% impact.

Maintain BUY. We continue to like MCT’s defensive nature backed by quality assets. There is no refinancing due this year and gearing has moved to 37.7% in line with the bigger cap reits. Yields of 6.1-6.5% are attractive given its strong sponsor links. Our DCF-backed TP of S$1.12 offers total return of close to 17.5%.