MCT posts DPU of 1.333cents for Q2

Net property income was $31.7m and income available for distribution, $24.8m

MAPLETREE Commercial Trust (MCT) yesterday announced a distribution per unit of 1.333 cents for the second quarter ended September, beating its forecast DPU of 1.218 cents by 9.4 per cent.

This translates to an annualised distribution yield of 6 per cent, based on the IPO price of 88 cents per unit.

For the period April 27 (its listing date) to Sept 30, its aggregate DPU is 2.289 cents, exceeding the IPO forecast of 2.097 cents by 9.1 per cent.

MCT achieved net property income of $31.7 million, 2.5 per cent above its forecast for the quarter.

Income available for distribution for the quarter was $24.8 million, beating its forecast by 9.4 per cent mainly due to the higher net income and lower interest costs on borrowings.

In particular, the company enjoyed a favourable average all-in interest rate of 1.95 per cent, compared with the forecast 2.43 per cent, said the manager, Mapletree Commercial Trust Management (MCTM).

VivoCity mall – which has close to 100 per cent occupancy – saw both tenant sales and shopper traffic increase 9.4 per cent and 13.9 per cent respectively year-on-year, for the period from April 1 to Sept 30.

With the new leases and renewals committed to date, a significant portion of the leases expiring this financial year have been renewed or re-let, providing rental uplift of approximately 20 per cent.

For its office portfolio, MCT achieved an occupancy level of 95.2 per cent, from last quarter’s 92.8 per cent, higher than the fringe office occupancy rate of 91.7 per cent for Q2.

Alexandra Retail Centre (ARC), the section of PSA Building now being upgraded, is also on track for completion by December.

‘We are also planning to progressively open some F&B and retail tenants soon after completion to serve our office tenants and both the working and residential population in the vicinity,’ said Amy Ng, chief executive of MCTM.

MCT ended trading yesterday half a cent higher at 86 cents.

Upside from VivoCity yet to kick in

• In line; maintain Outperform. 1Q12 DPU meets expectations at 19% of our full year estimate and consensus. The quarter only consisted of 65 days, after listing. Annualised, DPU would have formed 26% of our FY12 forecast. There was strong rental growth at VivoCity even though the bulk of potential lease-renewal upside (43% of leases) has yet to kick in. This remains a key catalyst for MCT in FY12, we believe, with the completion of AEI in PSAB and the possible acquisition of MBC forming the next triggers. We refine our model to assume slightly stronger growth for VivoCity (raising FY12-13 earnings by 3-4%) but lower our DDM-based target price from S$1.08 to S$1.01 on applying a lower terminal growth rate of 2% (2.5% previously), in line with our assumptions for its listed peers. MCT trades at a 5.9% CY12 yield.

• Potential upside from VivoCity yet to kick in. 1Q12 revenue inched up 3% yoy to S$33m as VivoCity’s base and turnover rents grew 4.5% and 6.7% yoy respectively. Although 43% of its total leases are due for renewal this year, we understand that the new base rates are likely to kick in only at end 2011/early 2012. The asset remains substantially under-rented, in our view, at S$9.79psf as at Nov 10 vs. an average of S$11-14psf for comparable malls in Singapore. We understand that GTO growth at VivoCity could have been 10-15% yoy, lending support to revenue growth for MCT (GTO rents form 20% of VivoCity’s gross revenue). We anticipate substantial rental reversions in FY12 as the mall enters its first renewal cycle.

• PSAB enhancement and MLHF step-up to add to NPI; acquisition trigger from MBC. Strong rental growth in the quarter was partially offset by the decanting of retail units for the development of the new Alexandra Retail Centre (ARC), due to be completed by end-2011. Retail space is estimated at 89.6k sf of NLA while office space consists of 15.1k sf of NLA. By Dec 11, the rental step-up provision for MLHF’s master lease (10-12%) will also be triggered to fuel further organic growth. In the mid-term, acquisition upside could continue to come from its sponsor’s assets under ROFR, namely Mapletree Business City.

MCT’s maiden distribution beats forecast

DPU of 0.9564 cent 8.7% higher than forecast 0.8795 cent

MAPLETREE Commercial Trust (MCT) yesterday announced a distribution per unit of 0.9564 cent for the period April 27 (its listing date) to June 30, beating its own IPO forecast of 0.8795 cent by 8.7 per cent.

This translates into an annualised distribution yield of 6.1 per cent, at yesterday’s closing price of 88.5 cents per unit.

MCT achieved net property income of $22.7 million, 2 per cent above its forecast, while gross revenue came up to $32.7 million, 0.9 per cent above forecast.

MCT attributed this to higher turnover rent, carpark income and advertising and promotion revenue from VivoCity, which was offset slightly by lower rental income from PSA Building, as carpark income fell slightly due to ongoing construction at Alexander Retail Centre.

Income available for distribution for April 27 to June 30 was $17.8 million, 8.7 per cent higher than forecast, mainly due to higher net income and lower interest costs on borrowings. Since its IPO, the manager has hedged 85 per cent of its total debt of $1.1 billion, achieving actual all-up interest costs of 1.96 per cent, better than the forecast 2.43 per cent.

As MCT only completed its acquisition of PSA Building and Merrill Lynch Harbourfront Building on its listing date, April 27, there are no comparative figures for the year-ago period.

But VivoCity, with close to 100 per cent occupancy, has seen both tenant sales and shopper traffic grow 16 per cent and 12 per cent respectively year-on-year, for the three months ended June 30.

For its office portfolio of Bank of America Merrill Lynch HarbourFront and PSA Building, MCT achieved an occupancy level of 92.8 per cent as at June 30, higher than URA’s fringe office occupancy rate of 91.7 per cent for Q2.

Alexandra Retail Centre (ARC), the section of PSA Building now being upgraded, is also likely to open by March 2012, three months ahead of schedule. Construction is on track for completion by December this year, and one-third of the space has been pre-leased, MCT said.

King of the South

• King of the South; initiate with Outperform. MCT is a Singapore-centric commercial REIT whose initial portfolio includes VivoCity, Bank of America Merrill Lynch Harbour Front (MLHF) and PSA Building, all located in Singapore’s Southern Corridor. We value MCT using DDM (discount rate 8.1%) and arrive at a target price of S$1.08. MCT offers one of the strongest organic and acquisition growth potentials among REITs within our coverage. Our target price of S$1.08 implies a total return of 29%. We see catalysts from higher-than-expected rental growth and accretive acquisitions.

• Strong opportunities for organic and acquisition growth. We expect organic growth to be fuelled by: 1) an under-rented portfolio (key asset VivoCity) coupled with significant leases expiring in FY12-13; 2) the development of Alexander Retail Centre (ARC) with increased footfalls expected after the completion of the nearby Labrador MRT Station; and 3) step-up rent increases for MLHF in 2011. Acquisition growth could come from rights of first refusal (ROFR) to its sponsor’s office, retail and business-space assets totalling 5m sf GFA.

• Strong sponsor to support growth. Sponsor, Mapletree Investments, a wholly owned subsidiary of Temasek Holdings, is a leading Asia-focused real-estate development and investment company. MCT should be able to depend on its sponsor for incubation or the joint development of greenfield projects. The sponsor is also likely to support MCT in future debt or equity fund-raising.

• Debt headroom to fuel acquisitions and asset enhancement. Starting off with asset leverage of 39.5%, MCT is in the process of obtaining a credit rating which would allow it to gear up to 60%. This provides debt headroom of S$282m to fuel acquisitions and asset enhancement, at 45% leverage.

• Citigroup Global has, after buying 6.228 mln units on Friday (68% of total trades on the day) under the stabilizing action program, ceased such action with the expiry of the option period.

• Citigroup has bought a total of 37.669 mln units, representing 31% of the total granted.

• We do not expect MCT’s unit price to come under undue stress just because the stabilizing action has ceased. Fact is MCT’s unit price has been rather resilient without need for stepped-up buying by Citigroup, ever since it fell below the IPO price of 88 cents on May 4th.

• We maintain BUY, especially should the unit price drop this morning on the above news.