Mapletree Commercial Trust

CIMB Research on 4 Dec2012

WHILE an acquisition of Mapletree Anson by Mapletree Commercial Trust (MCT) is likely less accretive than one involving Mapletree Business City, we take comfort in the fairly "in-line" acquisition pricing and accretion without the need for income support (albeit with a higher resultant asset leverage).

We tweak distributions per unit (DPUs) but keep our dividend discount model-based target price (discount rate: 6.9 per cent) of $1.39, factoring in the acquisition assuming a 75:25 debt-equity funding. Maintain "outperform" on MCT. We see catalysts from stronger-than-expected rental reversions on VivoCity.

MCT has announced the proposed acquisition of Mapletree Anson, a 331,854 square feet (net lettable area) grade-A office property for $680 million ($2,049 per sq ft), a 0.7-1.3 per cent discount to independent valuations. It expects the acquisition to be both DPU and NAV-accretive without income support. It has yet to confirm the optimal funding mode but maintains that the resultant asset leverage on revalued asset base ($3.1 billion, +7 per cent against last valuation) will stay within its internal target of 40-45 per cent. The acquisition circular has yet to be released. The deal is still subject to EGM approval.

With leases locked in mainly during/after the global financial crisis, passing rents are about $7.30 psf (versus comparable signing rents of $8 psf). This translates into implied cap rate of 3.0-3.4 per cent for the acquisition. Capital value of $2,049 psf compares well to CapitaCommercial Trust's acquisition of Twenty Anson at about $2,200/ $2,100 psf (with/without income support) in February 2012, but with the bulk of under-rented leases expiring later in FY2015/6.

We expect the deal to just break even in DPU accretion on assumed 75:25 per cent debt-equity funding and cost of borrowing of 2.0 per cent. Asset leverage post-acquisition should rise to about 43 per cent from 38 per cent as at end-Q2 FY2013.

While the potential acquisition of Mapletree Business City had been more widely expected, management noted that it is seeking the authorities' approval for redevelopment of nearby Comtech before any strata-titling of the site can be done for a potential acquisition (if any).

OUTPERFORM