Broker's take: UOB Kay Hian upgrades Mapletree Commercial Trust to 'buy'

UOB Kay Hian has upgraded Mapletree Commercial Trust (MCT) to "buy" and raised the target price of the property trust to S$2.62 from S$2.38, citing that valuations are attractive following an over 15 per cent decline since late January.

The real estate investment trust's (Reit) price target takes into account a 15 per cent tax rebate announced at the Singapore Budget reading on Feb 18 for commercial properties affected by the Covid-19 outbreak, as well as MCT's S$11 million support package for its retail tenants.

Units in the Reit, which has office and retail properties in Singapore, were trading down S$0.01 or 0.4 per cent to S$2.29 as at 11.02am on Friday. Since the US Federal Reserve announced a 50 basis point cut to the Fed funds rate on Tuesday, MCT units have been on a tear, gaining 7.5 per cent.

In a report dated March 6, UOB Kay Hian analysts Jonathan Koh and Loke Peihao expect rental income from MCT's business parks and suburban offices to see steady growth. The segment contributed 45.9 per cent of gross revenue, and 45.4 per cent of net property income, for the October to December quarter in 2019.

The majority of leases at Mapletree Business City I and Mapletree Business City II have an annual rental escalation of 2-3 per cent, the analysts noted.

With 91.4 per cent of its portfolio valuation concentrated in HarbourFront, the analysts expect MCT to be a key beneficiary of the Sentosa-Brani Master Plan announced last year.

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Furthermore, the S$4.5 billion reinvestment plan at integrated resort Resorts World Sentosa, which will be gradually rolled out from 2020 to 2025, should lift footfall at MCT's VivoCity due to higher traffic at HarbourFront MRT Station, Mr Koh and Ms Loke said.

The station is located below VivoCity. The mall forms 36.7 per cent of MCT's portfolio valuation.

The Singapore government's plans to develop the Greater Southern Waterfront area should bode well for MCT in the long term, given it will "increase the population of residents staying within VivoCity's catchment area", the analysts said.

"Up to 9,000 new residential homes (both public and private) could be built on the Keppel Club site when the current lease expires in 2021," they added.