SINGAPORE (Nov 28): OCBC Investment Research is initiating coverage on Mapletree Commercial Trust (MCT) at “buy” with a fair value estimate of $1.79 after inputting financial forecasts and capital asset pricing model (CAPM) assumptions into its model.
As at Nov 27, the research house sees potential total returns of about 15%.
In a Wednesday report, analyst Andy Wong highlights MCT as a REIT that would provider investors the “best of most worlds” considering its diversified portfolio mix, strong management team and track record, as well as healthy balance sheet.
MCT is valued at 1.1 times price-to-book with a historical distribution yield of 5.5%, compared to its peer averages of 0.99 times and 5.4% yield, respectively.
In Wong’s view, MCT offers a comparable distribution yield to the average of CapitaLand Mall Trust (CMT), Frasers Centrepoint Trust (FCT), and Suntec REIT – while at the same time, having a more diversified portfolio and strong sponsor in Mapletree Investments Pte Ltd (MIPL).
The analyst notes that MCT’s combined market valuation of $6.7 billion as at end-March represents a 5.4% increase compared to that of FY17 – driven largely by cap rates compression and better operating performance at VivoCity, which accounts for a sizeable proportion of the trust’s total portfolio valuation at 45.3%.
He also likes Mapletree Business City I (MBC I) as “one of the best, if not the best business park properties in Singapore” due to its good location, Grade ‘A’ building specifications, and longer leasehold interest in land tenure compared to traditional business parks.
While the MCT’s gearing ratio is slightly higher than its peers at 34.6%, Wong sees this as a comfortable level, and estimates a healthy debt headroom of about $590 million before it reaches the 40% mark.
“We believe the key investment merits of MCT lie in its high quality assets, strength of its management team, strong track record, and healthy balance sheet. Its portfolio comprises best-in-class assets from the retail, office and business park segments,” says Wong.
“This has been well complemented by MCT’s solid management team, who have a firm commitment to add value via active asset management efforts. As a result of these initiatives, MCT has also built an enviable track record of having delivered positive growth in its DPU every financial year since its listing,” he adds.
As at 4..56pm, units in MCT are trading 1 cent higher at $1.64.