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CIMB has upgraded Mapletree Commercial Trust (MCT) to an "add" from a "hold", citing the latter's plan to buy Mapletree Business City Phase 1 (MBC Phase 1) will boost its distribution per unit and strategically enhance its portfolio.
Earlier this week, MCT said it would be buying MBC Phase 1 from its sponsor Mapletree Investments for S$1.78 billion. The property is a large-scale integrated business hub with 1.71 million square feet of net leasable area of office and business park along Pasir Panjang Road. It boasts of a high committed occupancy rate of 99 per cent and remaining average lease expiry of 31/2 years.
"We are optimistic about this acquisition as it offers MCT exposure to the stable business parks segment, as well as diversifies its portfolio concentration risk at Vivocity from 60 per cent to 42 per cent of asset under management," CIMB analysts Lock Mun Yee and Yeo Zhi Bin said.
They noted that the top 10 tenants account for 69.6 per cent of the property's gross rental income. The tenants include notable names such as HSBC, Infocomm Development Authority of Singapore, Samsung, Unilever, SAP, Singapore Power and Mapletree Investments.
The analysts noted that the acquisitions will boost MCT's asset under management and market value to around S$6.2 billion and about S$4 billion respectively, making it one of top six largest listed Singapore Reits.
"In terms of impact, a full year's contribution from the new property is expected to boost distribution per unit by about 3 per cent and lift book net asset value to S$1.31 per unit," the analysts said.
They noted that the current blended rents average S$5.94 per square foot per month (psf/month) with inbuilt escalation clauses of 3 per cent.
"About 10.8-12.3 per cent of the leases are due to expire in FY17/18. With office and business parks' market rents of S$6-7psf/month, we expect to see positive rental reversions upon renewal, thus providing more earnings upside going forward."
At 11.13am on Thursday, MCT was trading around S$1.485 per unit, up S$0.025 or 1.712 per cent. CIMB's target price is S$1.620.