SINGAPORE (Sept 9): Mapletree Commercial Trust (MCT) has earned a spot on the benchmark Straits Times Index (STI), on the back of robust growth numbers as well as steady increase in revenue and shareholder returns.

For 1Q19/20 ended June, the REIT reported a 3.6% rise in DPU to 2.31 cents, compared to 2.23 cents in 1Q18/19. Income available for distribution rose 4.1% to $67.2 million, from $64.6 million last year.

As of July this year, MCT was one of the best-performing S-REITs, with total returns of 28.6% in the year to date. Currently, it has a market capitalisation of $6.5 billion.

MCT will be included in the STI from Sept 23. It will be replacing Hutchison Port Holdings Trust (HPHT), which was dropped from the index after an 84% decline in market value since its 2011 initial public offering.

See: HPHT booted from STI amid trade tensions

MCT will now be among Singapore’s top 30 listed companies, marking what analysts say is a “new dawn” for the REIT.

Its winning proposition is VivoCity, Singapore’s largest retail mall, which stands to benefit from the Greater Southern Waterfront (GSW) rejuvenation project.

The GSW project stretches from the Gardens by the Bay East area to Pasir Panjang, covering over 30km of Singapore’s Southern coastline and offering over 2,000 hectares of land for potential redevelopment.

It is touted as the new way to “live, work and play”, with up to 9,000 new residential development homes planned at the Keppel Club site.

There will also be development to the surrounding Pulau Brani and Pasir Panjang area, as well as big tech companies like Microsoft and Google taking up as tenants at MCT’s Mapletree Business City 2 project.

Meanwhile, VivoCity saw revenue increase by $2.6 million from 1Q18/19, driven mainly by higher rental income from new and renewed leases, achieved together with the asset enhancement initiatives completed in FY18/19 and the effects of the step-up rents in existing leases.

It also reported a 5.2% and 4.2% growth in gross revenue and NPI for 1Q19/20 in spite of the transitory downtime on shopper traffic and tenant sales resulting from the changeover of anchor space.

DBS Group Research analysts Derek Tan and Rachel Tan note that this will inevitably be positive for MCT, which has office properties in the Alexandra precinct (Mapletree Business City Phase 1 and PSA Building) and Harbourfront (Merrill Lynch HabourFront building).

“Over time, there are benefits from a wider pool of office occupiers looking to relocate there while the increased live-in population within the GCW will fuel the attractiveness of properties to occupiers,” they say in a Monday report.

DBS is keeping its “buy” call on MCT, and raising its target price to $2.40 from $2.25 previously.

The analysts say this reflects MCT’s ability to deliver consistent DPU growth of 3% CAGR over FY20-22F, and its scarcity premium of being one of only two 100% Singapore-focused large-cap REITs.

The brokerage expects MCT to maintain a weightage of 1.5% in the STI, in line with market expectations as seen by the close to 13% share price appreciation since the beginning of August 2019.

“While some investors might take some profit post the news, we believe MCT’s share price will remain elevated in anticipation of the potential injection of Mapletree Business City Phase 2. While the timing is still uncertain, we believe Mapletree Business City Phase 2, anchored by key tenants like Google, will be widely seen as a positive addition to the REIT,” they add.

As at 4.05pm, units in MCT are trading 1 cent higher at $2.25, implying a price-to-earnings (PE) ratio of 25.5 times and a distribution yield of 4.2% for FY20F.