ALP REIT INVESTMENT CLUB (8 October 2015)
Mapletree Commercial Trust (N2IU)
12-M Target price: S$1.40
1) Sector: Office and Retail
2) Core business structure:
MCT’s portfolio comprises four properties, namely PSA Building, Bank of America Merrill Lynch HabourFront, VivoCity and Mapletree Anson.
3) Segment that generates the highest revenue:
Retail and Office segments have generated 68.6% and 31.4% of the group revenue respectively.
4) Countries that the business operates: Singapore
Labour intensive businesses are likely to have their growth impacted due to likely increase in cost of manpower due to tight labour market.
The outlook for both retail and office sectors is one that would present some constraints to growth, as businesses are holding back expansion plans while increase in potential new supply in the next few years. Being unable to cater to the new tenants, growth likely to be restricted.
Interest rate volatility due to interest rate increase by the US Federal Reserve, result in interest rate and liquidity risk.
VivoCity has a Live, Work, Play concept, and its unique features and scale allow the organisation of large-scale events create distinctive experiences for shoppers. While Singapore saw a general slowdown in retail spending last year, tenant sales at VivoCity remained resilient for FY14/15, setting new sales record of about S$909 million despite some trading downtime due to the Asset Enhancement Initiative (AEI) works. Prime location for growth, since VivoCity is the only way to Singapore’s main tourist attraction, namely Sentosa. This property likely to allow for strong performance in revenue.
Company’s focus on asset and capital management, such as cost management and improve productivity, allows MCT’s portfolio to remain relatively resilient. Reduce cost pressures by enhancing operating efficiency and managing energy consumption. There was 1.6% reduction in overall operating expenses compared to the prior financial year.
Relatively trustable credit rating. Moody’s Investor Service upgraded MCT’s issuer rating to Baa1 (stable) from Baa2 (positive). This reflects improved and strong operating performance. Additionally, MCT awarded runner-up for Most Transparent Company Award in the REITs and Business Trusts category at the SIAS Investors’ Choice Awards 2014.
7) Significant events:
Hosting of Singapore Armed Forces SAF50@Vivo event.
MCT’s portfolio of properties were valued at about S$4.2 billion as at 31 March 2015, up 4.1% from 31 March 2014, supported by the strong operating performances of VivoCity and PSA Building.
PSA Building achieved BCA Green Mark GoldPlus certification in recognition of its green initiatives and efforts undertaken to improve operating efficiency and reduce energy consumption. With this, all the properties for MCT have been certified Green Mark Gold and above by the BCA.
8) GTI Ranking: Unavailable
10)Recommendation: Buy. According to Savills Research, the 47.1% rise in Chinese tourist arrivals in May could be the catalyst for improvement in the retail sector. China’s stock market start to show signs of stabilisation, 2016 may be the point of inflexion for tourist arrivals. Undoubtedly, rising competition from regional shopping cities, online retailing and rising labour and occupancy cost will continue to add pressure to overall profit. However, with MCT’s active capital and asset management and prime income-producing real estate, they are likely to overcome the challenges faced. This is supported by the evidence of strong growth as shown by the consistently rising revenue over the years.
COMPILED BY: Belle Teo
DISCLAMER: Readers should not rely solely on information published and should seek independent financial advice prior to making any investment decision. The publisher accepts no liability for any loss whatsoever arising from any use of the information published herein.