Friday, November 29, 2013

Mapletree Commercial Trust - Growth engine sputters

What Happened 
As VivoCity undergoes space reconfiguration to cater to several smaller anchor-tenants, we expect continual positive rental reversion to come through from this mall. During 2QFY14, MCT renewed/re-let 87% of the leases expiring in FY14, with a positive rental reversion of 37.1% and 23.4% for retail and office space, respectively. These leases are expected to underpin the growth of VivoCity in FY14. Looking ahead, with only 1.6% of retail leases to be renewed in FY14 (and 16% in FY15), coupled with a high portfolio occupancy rate of 98.9%, the mid- to long-term outlook for VivoCity remains clear.   
What We Think 
With its gearing of 40.8%, coupled with compressed cap rates within the commercial property space, we believe that it will be a challenge to find yield-accretive acquisitions in the near term. As the acquisition date of Mapletree Business City (MBC) is uncertain, we see MCT’s near-term growth as being limited to organic growth only.   
What You Should Do 
On the back of limited room to grow through further acquisitions, we believe MCT’s growth potential will be constrained. At this current level, we believe MCT is priced fairly given its resilient and stable portfolio. Upgrade to Neutral as we await meaningful catalysts.

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