Organic growth

3QFY12 was boosted by stronger year-end GTO rentals at VivoCity. With strong 25% rental reversions for committed retail leases and contributions from the newly-opened ARC, MCT’s organic growth should be one of the strongest among S-REITs.

3Q/9M12 annualised DPU is slightly above consensus and our estimates, at 27/78% of our FY12 on lower borrowing costs. We raise DPU by 2-4% on reduced borrowing costs and thus our DDM target price (disc. rate: 8.6%). Maintain Outperform.

Robust rental reversions at VivoCity

We expect strong rental reversions at VivoCity, backed by strong shopper traffic (+15%) and tenant sales (+9%) and an under-rented portfolio. 3QFY12 NPI grew 6% qoq and 9% yoy on higher passing rents during renewal and year-end GTO rentals at VivoCity. Positives were stronger YTD rental reversions of 25% (over preceding rentals, 2Q: 20%) for its retail leases as occupancy remained nearly 100%. Substantial leases will be due in FY13 and management has started discussions as early as 10 months ahead of expiry, noting good demand from existing and prospective tenants.

Maiden contributions from Alexandra Retail Centre

Its newly-opened ARC (in mid-Dec 11) contributed to 3QFY12. While occupancy and commitments were fairly low at 36% and >55% (of NLA) respectively due to its earlier commencement, we expect these to rise with management in close discussions with several prospects.

Stable office performance

The completion of ARC has added 15k sf to MCT’s office portfolio. Excluding this, occupancy at PSA Building has climbed to 95.1% from 92.7% the last quarter. We understand that while tenants are increasingly cautious, asking rents are still stable. The commencement of ARC could provide additional impetus for the leasing momentum at PSA Building.

MCT Q3 DPU beats forecast by 15.5%

MAPLETREE Commercial Trust (MCT) posted a distribution per unit (DPU) of 1.428 cents for the third quarter ended Dec 31, 2011, beating its forecast of 1.237 cents by 15.5 per cent.

This translates to an annualised yield of 6.7 per cent, based on MCT’s closing price of 85 cents on the last trading day of 2011.

Gross revenue of $49.7 million for Q3 exceeded forecast by 4.4 per cent and was 10.7 per cent higher than the unaudited pro-forma gross revenue for the same period the previous year following stronger revenue streams from VivoCity, new contributions from Alexandra Retail Centre (ARC) as well as tenants taking up additional space in PSA Building.

Consequently, net property income (NPI) rose 9.3 per cent to $33.8 million from $30.9 million in the corresponding period a year back (based on pro-forma numbers).

Cumulatively, from the commercial real estate investment trust’s (Reit) April listing date till Dec 31, 2011, a gross revenue of $127.4 million was recorded, up 4.9 per cent year-on-year due to stronger revenue flows from VivoCity and positive rent renewals.

Correspondingly, NPI also climbed 5.5 per cent to $88.2 million year-to-date and distributable income rose to $69.2 million, up 25.2 per cent on the back of higher net income and non-tax deductible items that were not factored in the pro-forma numbers.

So far, the DPU for the period spanning April 27, 2011 to Dec 31, 2011, stands at 3.717 cents, beating the IPO forecast of 3.334 cents by 11.5 per cent.

MCT’s total portfolio was also recently valued at $2.9 billion as at Nov 30, 2011, by DTZ Debenham Tie Leung (SEA) Pte Ltd, which triggered a revaluation gain of $62.4 million in the Reit’s books.

Gearing also improved by declining to 37.7 per cent from 38.5 per cent previously.

Going forward, management expects MCT’s portfolio which is located along the ‘Southern corridor’ of Singapore to benefit from the opening of MRT stations on the Circle Line extension, while the mix of office and retail together with a diversified tenant base would reduce risk and offer sustainability of earnings.

MCT ended trading unchanged at 86.5 cents yesterday.

MCT unveils tax refund scheme for unitholders

UNITHOLDERS of Mapletree Commercial Trust (MCT) will be able to use back-end tax refund procedures to claim over-deducted tax on income distributions.

This follows an arrangement established with the Inland Revenue Authority of Singapore (IRAS), MCT’s manager Mapletree Commercial Trust Management said yesterday.

According to the arrangement, foreign non-individuals holding MCT units directly, or individuals and foreign non-individuals whose MCT units are held through a depository agent, and who have had their distributions taxed, are eligible under the scheme.

Under the latter category, refunds have to be claimed by the respective depository agents.

Other categories of beneficial unitholders will need to go through the normal process of tax return filing to claim a refund, if any, of the over-deducted tax.

Distributions made by real estate investment trusts (Reits) listed on the Singapore Exchange to individuals, whether foreign or local, are tax exempt, except for individuals who derived the distributions from the carrying on of a trade, business or profession, or from a partnership in Singapore.

Reits’ distributions to foreign non-individual investors on the other hand are entitled to a reduced tax rate of 10 per cent for distributions made from Feb 18, 2005 to March 31, 2015.

The back-end refund is applicable to MCT distributions made on or after April 27.

To make a claim for refund, unitholders need to supply the appropriate forms and subsidiary income tax certificates (SITCs). The trustee and manager will file a claim for refund with the IRAS on a half-yearly basis.

ARC off to a good start with tenants

MAPLETREE Commercial Trust’s (MCT) up-and-coming Alexandra Retail Centre (ARC) has secured a portfolio of strong anchor tenants prior to its expected opening later this year.

Notably, NTUC FairPrice and McDonald’s are the two largest tenants signed on thus far and collectively occupy around 15 per cent of the mall’s total lettable area.

In terms of overall tenant-mix, ARC is expected to encompass a higher proportion of food-and-beverage (F&B) outlets as compared to most other malls.

In fact, as the development is intended to be a convenience mall mainly serving the office population in the Alexandra Precinct, F&B outlets have been designated to make up 30-40 per cent of ARC’s total tenant-mix with the remaining largely comprising a supermarket as well as lifestyle and service-type tenants, highlighted a spokesman for Mapletree Commercial Trust Management Ltd (MCTM).

In addition to McDonald’s, the retail centre – which is within walking distance of the newly-opened Labrador Park MRT Station – has also signed on F&B names such as BBQ Chicken, Spinelli’s and The Soup Spoon.

Education and enrichment centres catering to the residential population in the wider area such as Cristofori Music School and Berries World of Learning will also be part of the new mall, which has Watson’s and Unity signed up as well. ARC has concluded leases for around half of its lettable area so far.

Expected to open its doors to the public some time in December, the MCT mall is expected to be fully occupied by next July as it opens gradually over the course of the next few months.

‘We are opening the mall progressively so as to improve the connectivity of the precinct to and from the MRT station as well as to improve the provision of amenities to the precinct,’ said the MCTM spokesman.

Assuming things go according to plan and the mall is completed on schedule, ARC is expected to contribute positively to MCT’s topline and dividend per unit (DPU) in its upcoming fourth-quarter and next financial year results.

Awaiting Vivocity contributions

No surprises from 2Qas we await contributions from Vivocity after lease renewals and the completion of AEI at ARC.Almost all its leases due in FY12 have been renewed with good rental reversions. The trend shouldcontinueinto FY13.

2Q12/1H12 DPU is broadly in line with our estimates and consensus, forming 25%/51% of FY11. We fine-tuned our numbers but keep our DDM-based target price (discount rate: 8.6%). Maintain Outperform.

Vivocity’s new lease of life

As its largest asset, an under-rented Vivocity should provide strong impetus for future growth. YTD, management has renewed almost all the retail leases due in FY12 at good rental reversions of 20%. Contributions should flow in after the refurbishment of some units. As the mall is substantially under-rented (estimated passing rents of S$10.10 psf vs. peers’ S$11-14), rental reversions should remain positive next year, particularly with footfall and retail sales expected to benefit from the opening of the MRT Circle Line extension.

More to look forward to

The completion of Alexandra Retail Centre (ARC) should provide another leg up. Over 50% of ARC (by NLA) has been pre-committed, up from over 33% last quarter. Construction is more than 90% completed and ARC is on schedule to open by Dec 11. Rather than going for a soft launch, management is looking at the progressive opening of its outlets. Rental step-up provisions in MLHF’s master lease (10-12%) should provide further uplift by Dec 11.

Mapletree Business City not due for injection yet

Still seeing growth potential from its existing portfolio, management is not looking at an injection of Mapletree Business City in the next six months. This puts to rest any concerns about near-term cash calls for the injection, given asset leverage of 38.5%. Pre-commitments have since climbed to 84-5% with asking rents still fairly stable.