N2IU.SI
Mapletree Commercial Trust - An Eye on the Future
MBC I is a rare gem.
- We believe the acquisition of Mapletree Business City – Phase 1 (MBC I) represents a rare gem, not only due to the scarcity of supply in Grade A Business Parks, but also adds diversification to the portfolio by adding a new property type. After the acquisition, the portfolio breakdown by valuation will be 22.2% for business parks, 58.2% office and 42.1% retail from 40.2% office and 59.8% retail.
- This acquisition is expected to be DPU accretive and is reflected in our TP of S$1.62 and forecasted DPU which translates to DPU growth of 7-10% for the next two years from the pre-acquisition level in FY16.
VivoCity a preferred retail destination.
- As anticipated, the REIT has utilised the opportunity of lease expiries to rebalance the tenant mix at VivoCity. This has enabled it to achieve a whopping rental reversion of 13.8% in 1H17 without compromising on the occupancy rate.
Adequate debt headroom.
- As the S$1.8bn acquisition of MBC I was financed by approximately 45/55 split in debt and equity, gearing edged up to 37.3% from 35.0%, which translates to a debt headroom of S$487.9m based on the regulatory cap of 45%. This gives the REIT adequate debt headroom to finance future asset enhancement initiatives.
Valuation
- We maintain our DCF-backed target price to S$1.62.
- The stock offers a dividend yield of 6.2-6.3% for FY17-18F at the current price. BUY call maintained.
Key Risks to Our View
- Weaker operational performance from VivoCity While VivoCity’s performance has been very encouraging, the mall is gradually phasing into a matured stage with potential decline in growth ahead.
- Nonetheless, the acquisition of MBC I, still a segment in high demand, would mitigate the slowdown in growth at VivoCity.
Singapore Research Team
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Derek Tan
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Mervin Song CFA
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http://www.dbsvickers.com/
2017-01-04
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SGX Stock
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1.620
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