SINGAPORE (Sept 30): Analysts are bullish on Mapletree Commercial Trust (MCT), after the REIT announced Friday it is acquiring Mapletree Business City (Phase 2) for a total of $1.58 billion.
Together with Mapletree Business City (Phase 1), which was acquired by the trustee in 2016, this will see MCT consolidate its ownership over the entire Mapletree Business City Development.
The accretive acquisition will see MCT dominate the 13.5-hectare Alexandra precinct, which lies just outside Singapore’s central business district in the Queenstown Planning Area.
See: Mapletree Commercial Trust to acquire Mapletree Business City (Phase 2) for $1.58 bil
“We view the acquisition positively,” says CGS-CIMB Research lead analyst Eing Kar Mei in a report on Friday. “We expect MBC II to further enhance the income stability of MCT in view of the quality of the building and strategic location.”
“[MBC] is one of the rare business parks with Grade-A building specifications which offers a cheaper alternative to CBD offices,” she adds.
Eing notes that, based on proforma financials, the deal is expected to be 4% DPU and 2.2% NAV accretive.
Post-acquisition, MCT’s portfolio valuation will be enlarged from $7.4 billion to $8.9 billion. And Eing says rental income contribution from the growing technology segment will also increase from 5.5% to 18% of MCT’s total gross rental income.
Eing is raising her target price for MCT by 6.3% to $2.38, as she lifts DPU forecasts for FY20-22 by 1-4%.
However, the analyst is downgrading MCT to “hold” from “add” previously, but advises investors to “accumulate on share price weakness”.
“While we like the deal… we think the strong share price performance recently has priced in near-term catalysts,” Eing says.
Units in MCT last week climbed to an all-time high of $2.38, before closing at $2.34 on Friday following the announcement of the acquisition. Year-to-date, its share price has surged more than 39%.
Meanwhile, Maybank Kim Eng Research is also has a “hold” call on MCT, with an unchanged target price of $2.10.
“We are positive on Singapore’s business park growth fundamentals given the government’s decentralisation efforts,” says analyst Chua Su Tye in a report on Monday. He notes that some 53% of business park tenants at MBC II had relocated from the CBD, while 29% were led by upgrades to higher quality space.
However, he too believes the positives from the acquisition have been largely priced in.
“We estimate a 4-6% DPU accretion but see this event as largely priced in at 4% div yield on 3% DPU growth,” Chua says.
He adds that the brokerage will adjust its forecasts after MCT’s EGM in mid-October.
As at 1.15pm on Monday, units in MCT are trading 2 cents down, or 0.9% lower, at $2.32. According to CGS-CIMB valuations, this implies an estimated price-to-book value (P/BV) ratio of 1.3 times and a dividend yield of 4% for FY20F.
