Mapletree Commercial Trust’s (“MCT”) debut on Singapore Stock Exchange on 27 Apr 2011 with an IPO price of $0.88. Prior to its listing, some market watchers were expecting that it should do relatively well in terms of its share price performance. This was 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.

However, 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. As of 30 Jan, it closed at $0.865.

What has happened to MCT? Will it continue to stay below its IPO price of $0.88?

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 $2.94b.

Table 1: Snapshot of MCT’s properties

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 2Q11/12 results, 57 out of the 62 leases expiring by March 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 FY12/13 results. 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 FY12/13
Trend of upwards rental reversion remains stable in FY12/13. Firstly, Vivocity’s passing rental of around $10/psf is significantly lower than its peers who renewed its leases at around $11-14, thus there is likely to be room for rental reversions in FY12/13 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 December, 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 FY12/13. There should be more update on ARC post their 3Q11/12 results on 31 January.

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 2Q11/12. This bodes well for MCT’s performance.

5. 0% of debts expiring on or before March 2013
MCT does not have any refinancing requirements before March 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 $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 2012.

2. DPU may not increase consistently
According to the prospectus, MCT’s policy is to distribute 100% of its Taxable Income FY12/13 and at least 90% of its Taxable Income thereafter. In other words, a portion of the Taxable Income in FY13/14 (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 FY13/14, 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 FY12/FY13 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

Source: Bloomberg as of 27 Jan 12