Mapletree Commercial Trust - Maybank Kim Eng 2016-07-07: Transformative Acquisition

Mapletree Commercial Trust - Maybank Kim Eng 2016-07-07: Transformative Acquisition MAPLETREE COMMERCIAL TRUST N2UY.SI 

Mapletree Commercial Trust (MCT SP) - Transformative Acquisition

Positive on major acquisition; U/G to HOLD

  • MCT’s proposed SGD1.86b acquisition of Mapletree Business City Phase 1 (MBC1) will transform it to having 24% exposure to business parks — the real estate sub-sector with the best supply/demand outlook. 
  • Acquisition is at market price and estimated to be funded 53:47 equity/debt. 
  • DPU accretion raises FY3/17-19 estimates by 3.2-5.5%. U/G to HOLD with TP revised to SGD1.56 from SGD1.35. 
  • We also lower our yield target to 5.5%, 1SD below the mean, from 6.1% to reflect a world of yield compression.

Transacted at market value, but accretive

  • MBC1 consists of 1.7m sf of office (24.6%) and business park (75.4%) space. 
  • Specs are Grade A, with exceptional amenities (sports, swimming pool, town hall, F&B, greenery) that cater to high-value industries that value a campus feel in a convenient but non-CBD location. 
  • Priced at an NPI yield of 5.6% (SGD1.78b, SGD1,042psf, 2.6% below valuation), vs DPU yield of 5.5%, the acquisition will be easily accretive as it will be c.47% debt financed, the rest equity. Cap rates in the market are c.4%/c.6% for office/business parks. 
  • On a 24.6%/75.4% office/business park basis, this works out to be 5.5%, not far from the target’s NPI yield.

Business parks the right place to increase exposure

  • Increased exposure to business parks is the key plus point. 
  • According to our SG Strategy: The Singapore FIX, R&D and high-value industries will be promoted via the SGD19b Research Innovation & Enterprise plan. These require business park space, which will be in short supply from 2017. 
  • Rents and occupancy should be well supported. 97.5% of the leases have attractive 3% pa rental step-ups. Reversion upside could also be strong for the office component as it is c.24% below market.

Yield compression

  • In SREIT Strategy: To flow or not to flow, we highlighted that REITs globally are a cheap asset class relative to bonds, and SREIT yields are the most attractive among developed markets. In an environment of heightened risks to growth, global bond yields have further compressed, supporting the case for further SREIT yield compression. 
  • We tighten MCT’s yield target to 5.5%, 1SD below the mean, from 6.1% previously.

Joshua Tan Maybank Kim Eng | Derrick Heng CFA Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2016-07-07
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