Daiwa: Now prefer CICT over Mapletree Commercial for Singapore-centric theme

Mapletree Anson office building, part of Mapletree Commercial Trust’s portfolioMapletree Anson office building, part of Mapletree Commercial Trust’s portfolio

CapitaLand Integrated Commercial Trust (CICT) is now the preferred pick over Mapletree Commercial Trust (MCT) for large Singapore-centric commercial property exposure after MCT and Mapletree North Asia Commercial Trust (MNACT or MAGIC) agreed to merge, Daiwa said in a note Monday.

On Friday, MCT and MNACT announced a plan to merge into Mapletree Pan-Asia Commercial Trust in a S$4.22 billion deal, creating one of Asia’s top-10 largest REITs with assets across Singapore, South Korea, China, Hong Kong and Japan.

Daiwa noted CICT, which it rates at Outperform, has a 91 percent exposure to Singapore, including its recent office property acquisitions in Sydney, Australia.

“With a pro forma share of Singapore exposure post-merger of 51 percent by asset value and 53 percent by NPI, we believe MCT (ie, the merged entity, Mapletree Pan Asia Commercial Trust [MPACT]) can no longer be considered Singapore-centric, compared with most other Singapore commercial-property REITs,” Daiwa said. NPI stands for net property income.

MCT has traded at a premium to its commercial property peers over the past year, likely due to the pure-play Singapore exposure, which would no longer be justified post-merger, Daiwa said.

Daiwa said the only plausible reason for MCT to acquire MNACT now would be if there were plans for MPACT to boost its Singapore exposure.

“However, the sheer size of assets required to raise MPACT back to a Singapore-centric REIT would be formidable,” the investment bank said, estimating it would require around S$16 billion in assets for a 75 percent exposure to Singapore.

“MCT should no longer command a significant premium over its peers, in our view,” but may still offer a slight premium to CICT due to arguably higher quality assets, Daiwa said.

Daiwa kept an Outpeform call on MCT, but cut its target price to S$2.15 to S$2.30. Outperform is Daiwa’s second-highest stock rating, after Buy.

“We reaffirm our Outperform (2) rating as we believe MPACT will look to redevelop the Singapore ROFR [right of first refusal] with the sponsor to increase Singapore exposure,” Daiwa said.

For MNACT, Daiwa kept an Outperform call, but raised its target price to S$1.28 from S$1.12 by pegging it to the offer price from MCT.

Under the deal, which will be a trust scheme of arrangement, unitholders of MNACT will receive S$1.1949 for each unit, to be paid by either 0.5963 new MCT unit issued at S$2.0039, or a combination of 0.5009 MCT unit and S$0.1912 in cash, the trusts said Friday.

Daiwa rates CICT at Outperform, with an unchanged S$2.28 target price.

In addition to becoming the best proxy for large-cap Singapore-centric commercial property, “we see the gradual re-opening of the Singapore economy and retail sector as well as further asset-enhancement or major asset redevelopment announcements in 2022 as the major catalysts for CICT,” the note said.

Mapletree Commercial Trust units tumbled for a second day, trading down 5.21 percent at S$1.82 at 4:42 p.m. SGT. Mapletree North Asia Commercial Trust units dropped 4.35 percent to S$1.10 by 4:44 p.m. SGT.

CapitaLand Integrated Commercial Trust units rose 1.46 percent to S$2.08 by 4:43 p.m. SGT.