MCT – doomed to stay below IPO price?

Mapletree Commercial Writeup                                                                                                       30 Jan 12
Mapletree Commercial Trust’s (“MCT”) debut on Singapore Stock Exchange on 27 Apr 2011 with an IPO price of $0.880. Prior to its listing, some market watchers are expecting that it should do relatively well in terms of its share price performance. This is because Mapletree Industrial Trust launched its IPO half a year earlier and received a sterling debut (for a trust). Its first day and first week gain amounted to 22.7% and 16.7% respectively. Unfortunately, MCT did not perform as well. It closed unchanged on its first day and closed -1.1% lower for its first week. Since its listing, it only closed about six trading days above its IPO price.
What has happened to MCT? As of 30 Jan, it closed at $0.865. Is it doomed to stay below its IPO price of $0.880?
Description of MCT
With reference to Table 1 below, it has three properties under its portfolio, viz. Vivo City; Bank of America Merrill Lynch Harbourfront (“MLHF”) & PSA Building. As of 30 Nov 11, the properties are valued at S$2.94b.  
Table 1: Snapshot of MCT’s properties
–> Pls refer to IPO prospectus as i am unable to paste it here. Alternatively, u can email me and i can send u a pdf copy of my writeup.
Source: IPO Prospectus (30 Nov 2010) MCT’s properties were valued at S$2.82b in its IPO Prospectus but they were revalued upwards to S$2.94b as of 30 Nov 11.
Some interesting notes on MCT
1.      Rental reversion in FY2011/2012 to contribute to strong results
According to its latest 2QFY2011/2012 results, 57 out of the 62 leases expiring by Mar 2012 have been renewed. 40 retail leases have been renewed with an upwards rental increase of 20%. 17 office leases have been renewed with an upwards rental increase of 8%. These rental reversions are likely to contribute to FY2012/2013 results. (MCT’s year end is in Mar.) In addition, MLHF is also likely to see rental uplift when it is up for renewal in Dec 11.
2.      Upwards rental reversion likely to continue in FY2012/2013
Trend of upwards rental reversion remains in FY2012/2013. Firstly, Vivocity’s passing rental of around S$10 / psf is significantly lower than its peers who are around S$11-14, thus there is likely to be room for rental reversions in FY2012 / 2013 as 223 leases are up for renewal with the bulk of it in retail sector. Secondly, Vivocity is connected directly to two MRT lines, namely the Circle Line Extension and North East Line. With the recent opening of Circle Line Extension, LTA expects ridership on the Circle Line to increase from 180,000 to 400,000 daily. This bodes well for Vivocity retail sales as more footfall is likely lead to more sales.
3.      Alexandra retail centre (“ARC”) opened 6 months ahead of schedule
ARC was progressively opened on 15 Dec, 6 months ahead of schedule. More shops would be opened in January. With the opening of ARC, this should boost its distribution per unit (“DPU”) in FY2012/2013. There should be more update on ARC post their 3QFY2011/2012 results on 31 Jan.
4.      High average occupancy rate of 98.1%, up 1% q-o-q
MCT’s portfolio of assets improved 1% on a quarter on quarter basis to 98.1% in 2QFY2011/2012. This bodes well for MCT’s performance.
5.      0% of debts expiring on or before Mar 2013
MCT does not have any refinancing requirements before Mar 2013. Its average term to maturity for debt amounts to 2.9 years and all in interest cost of debt is low at 1.95%.
6.      Strong sponsor
The Sponsor Mapletree Investments Pte Ltd (“MIPL”) has a pipeline of assets such as Mapletree Business City (“MBC”); Mapletree Lighthouse; The Comtech etc and has given MCT the right of first refusal on such properties. MIPL is indirectly wholly owned by Temasek.
One noteworthy point though…
1.      Possible cash call in future
MCT’s current gearing is 38.5%. Management has indicated its intention to acquire the MBC in future. According to Mapletree Investment’s balance sheet, MBC is valued at S$1.0b. Given MCT’s existing gearing of 38.5%, it is likely that MCT may go for a cash call. However, management informed that they will not acquire MBC before April.
2.      DPU may not increase consistently
According to the prospectus, MCT’s policy is to distribute 100% of its Taxable Income FY2012/2013 and at least 90% of its Taxable Income thereafter. In other words, a portion of the Taxable Income in FY2013/2014 (and thereafter) may be retained and not distributed to unit holders. Therefore, although there is likely to be a boost in its gross revenue / net property income in FY2013/2014, the boost in its DPU may not increase to the same extent.

Conclusion: Likely to be re-rated if it continues to deliver
With reference to Table 2 below, MCT trades at 0.9x estimated price to book and 6.1% dividend yield. Its aforementioned initiatives (such as uplift in rentals from its properties; opening of ARC etc.) are likely to provide a boost in FY2012/FY2013 results and subsequently to its DPU. Re-rating is likely if it continues to deliver on its results.
Table 2: MCT vis-à-vis its peers
Short Name Cur Last Px Analyst TP Change in TP 1 Yr high 1 Yr low Adj Mkt Cap (S$m) FY12F P/BV ROE (%) Fwd Div Yield (%)
MCT SGD 0.87 1.00 16% 0.91 0.79 1,612.5 0.9 NA 6.1
Capitamall Trust SGD 1.70 1.95 15% 2.02 1.62 5,641.7 1.1 7.5 5.9
Frasers Centrepo SGD 1.46 1.66 14% 1.58 1.37 1,196.8 1.0 14.2 6.4
Starhill Global SGD 0.60 0.72 20% 0.67 0.55 1,156.1 0.6 8.8 7.1
Average ex MCT           0.9 10.2 6.5

Source: Bloomberg as of 27 Jan 12
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