Mapletree Commercial Trust was tagged by CIMB as 'King of the South' with its $282million debt headroom that is sure to fuel future acquisitions and asset enhancements..
The real estate company continues to outperform as it sees good opportunities for growth and strong support from sponsors.
Here’s more from CIMB:
King of the South; initiate with Outperform. MCT is a Singapore-centric commercial REIT whose initial portfolio includes VivoCity, Bank of America Merrill Lynch Harbour Front (MLHF) and PSA Building, all located in Singapore’s Southern Corridor. We value MCT using DDM (discount rate 8.1%) and arrive at a target price of S$1.08. MCT offers one of the strongest organic and acquisition growth potentials among REITs within our coverage. Our target price of S$1.08 implies a total return of 29%. We see catalysts from higher-than-expected rental growth and accretive acquisitions.
Strong opportunities for organic and acquisition growth. We expect organic growth to be fuelled by: 1) an under-rented portfolio (key asset VivoCity) coupled with significant leases expiring in FY12-13; 2) the development of Alexander Retail Centre (ARC) with increased footfalls expected after the completion of the nearby Labrador MRT Station; and 3) step-up rent increases for MLHF in 2011. Acquisition growth could come from rights of first refusal (ROFR) to its sponsor’s office, retail and business-space assets totalling 5m sf GFA.
Strong sponsor to support growth. Sponsor, Mapletree Investments, a whollyowned subsidiary of Temasek Holdings, is a leading Asia-focused real-estate development and investment company. MCT should be able to depend on its sponsor for incubation or the joint development of greenfield projects. The sponsor is also likely to support MCT in future debt or equity fund-raising.
Debt headroom to fuel acquisitions and asset enhancement. Starting off with asset leverage of 39.5%, MCT is in the process of obtaining a credit rating which would allow it to gear up to 60%. This provides debt headroom of S$282m to fuel acquisitions and asset enhancement, at 45% leverage.
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