MCT is a Singapore-focused real estate investment trust (REIT) that comprises five properties in Singapore. Its properties include VivoCity (Singapore’s largest mall), Mapletree Business City, mTower (previously known as PSA building), Mapletree Anson and Bank of America Merrill Lynch HarbourFront. Its portfolio has a total Net Lettable Area (NLA) of 5mn square feet, valued at S$8.8bn.
Oversold. Units of MCT dropped by as much as 10% over the last two trading sessions, triggered by the REIT’s announcement of its merger with Mapletree North Asia Commercial Trust (MNACT). We think this is likely due to MNACT’s geographical diversified asset base in North Asia, which is a significant contrast to MCT’s focus on the Singapore market. Furthermore, investors may have reservations over MCT’s higher gearing after the merger. Post-merger, MCT’s gearing is estimated to increase from 33.7% to between 38.0% (scrip-only) and 39.2% (cash-and-scrip), depending if unitholders were to elect to receive a combination of cash and scrip.
Third largest REIT post-merger. Assuming MCT receives 50% of total number of votes cast for the proposed merger to proceed, the merged REIT entity will be Singapore’s third-largest REIT by market capitalisation, just below CapitaLand Integrated Commercial Trust (CICT) and Ascendas REIT (AREIT).
Consensus forecast and valuations. After the 10% drop, MCT now trades at a 10% discount to the 10-year P/B average of 1.18x. MCT is forecasted to provide a 5.1% and 5.4% dividend yield for FY2022 and FY2023 (March YE). After the announcement of the merger, consensus estimates are mixed with 7 BUYS, 6 HOLDS and 1 SELL. The 12m average TP is S$2.24, implying a 23% upside potential.
