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Mapletree Commercial Trust: Strong Portfolio But Overpriced

Key Highlights:

  • Acquiring Mapletree Business City Phase 2 (MBC II), which will boost DPUs by 4 to 6%

  • Its portfolio comprises of strong assets with growth fundamentals

  • The current valuation of the REIT is a bit expensive

The acquisition of MBC II will grow Mapletree Commercial Trust (SGX: N21U) by 21% to SGD8.9b and will potentially raise the DPUs by 4 to 6%. The asset will allow Mapletree Commercial Trust (MCT) to diversify its portfolio to the business park, which is backed by 99.4% committed occupancy. Besides, 97% of the leases come with an average of 2.3% rental step-ups per annum.

Three things to consider before you invest in MCT

1. Expensive valuation

While the acquisition is yield accreditive, MCT's valuations are much overvalued after the recent rally. The dividend yield is way below the one and even two standard deviations below its historical average. Price to book ratio is also trading at all-time high since 2011.

MCT is currently trading at historical low dividend yield, in the range of 4 - 4.8%.

Source: Maybank Kim Eng research report

Price to book ratio is at all-time high, indicates that the REIT is potentially overvalued.

Source: Maybank Kim Eng research report

2. Portfolio concentration

Post-acquisition, MCT's top three properties, Vivocity, MBC I and II will contribute more than 80% of its total net property income.

3. Tenant concentration

Google becomes its single largest tenant who occupies 13.5% of its net lettable area. Besides, the slowdown in the global economy could soften the demand for retail and office, which will result in lower rental or occupancy rate.

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