SINGAPORE (July 17): Maybank’s Kim Eng Research has kept its “buy” call for Mapletree Commercial Trust (MCT) with an unchanged target price of $2.15.

In a Thursday report, analyst Chua Su Tye noted that the REIT’s AUM has risen on the back of three acquisitions post-IPO, while its earnings profile has improved with its higher technology sector tenancies. The analyst also likes MCT for its diversified portfolio as it owns two best-in-class assets: Mapletree Business City (MBC) and VivoCity, which together contributes 79% of its NLA and 80% of FY21 NPI estimates.

VivoCity is Singapore’s largest destination mall at 1.1 million sq ft of NLA and shopper traffic of 51.5 million in FY20. Value-accretive asset enhancement initiatives (AEIs) at VivoCity, have also continued to strengthen the mall’s relevance in Singapore’s retail landscape, and place it at the centre stage of management’s social and environmentally-led initiatives.

These proactive AEIs have delivered positive rental reversions and a 0.5% compression in cap rates to 4.63% as of end Mar 2020.

Management has continued to leverage the mall’s strong attributes through collaborations with non-profit organisations, to raise the visibility and impact of philanthropic, social and environmental causes since its opening in 2006.

In September last year, MCT acquired Mapletree Business City (Phase 2), while Phase 1 was 2016. Now, MCT is reaping the benefits from its acquisitions as it has increased its exposure to the more stable business park segment, and has raised its gross rental income contribution from the burgeoning technology sector from 5.1% to 18.5%.

Furthermore, the asset is well-placed, with demand supported by CBD decentralisation and tight supply at the city-fringe.

“It has strengthened MCT’s control within the Alexandra precinct and dovetails with the Government’s long-term development plans for Singapore’s Greater Southern Waterfront,” says Chua.

On the other hand, MCT earlier in April this year announced a shocking 60.6% cut to its DPU for 4Q20 ended March to just 0.91 cents from 2.31 cents declared the same period a year ago. This was reported in anticipation of uncertainties arising from the Covid-19 pandemic, which include lower shopper traffic and tenant sales at VivoCity.  

See: Mapletree Commercial Trust slashes 4Q DPU by 60.6% to 0.91 cents amid Covid-19 uncertainty

Nonetheless, the analyst is remaining positive on the REIT’s outlook at he expects DPU to recover in FY21, buoyed by the MBC II deal. Rental reversions are also expected to improve as VivoCity is should see rents decelerate from strong double-digits to 1.5-2% in FY21-22 as its rents catch up with the market, while rents at MCT’s business parks assets are expected to grow at 2-5% per annum on limited supply and firm demand.

At 2.05pm, units in MCT are trading at $1.93, giving it a FY21 price-to-book ratio of 1.1 times with a DPU yield of 4.2%.