Mapletree Commercial Trust - CIMB Research 2016-10-26: Still going strong

MAPLETREE COMMERCIAL TRUST N2IU.SI

Mapletree Commercial Trust - Still going strong

2Q/1HFY17 DPU at 2.05/4.08 Scts, making up 25%/49% of our FY17 estimates.
VivoCity continues to deliver positive rental reversion, underpinned by higher tenant sales and shopper traffic.
Office renewals benefited from higher occupancy and positive rental uplift.
Manageable office and retail renewals over 2HFY17-18F.

MCT delivered a 23.6% yoy increase in 2QFY17 revenue to S$88.1m (US$63.4m) while distribution income rose 25.4% yoy to S$53.6m (US$38.6m), thanks to better performance across all its assets and maiden contributions from MBC1.
However, DPU only inched up a marginal 1.5% yoy to 2.05 Scts due to dilution from new units issued as well as a timing difference between income recognition of MBC1 and issuance of private placement and preference units. Excluding the latter, DPU would have been up 9% yoy.

1HFY17 rental revenue at VivoCity rose 5% yoy to S$98.2m (2QFY17: S$49.8m), with reversions 13.8% higher over preceding levels (including tenant space renewals) and higher occupancy of 99.3%.
Underlying operating conditions remained fairly robust, with tenant sales up 1.5% yoy and shopper traffic up 1.8% yoy (2QFY17: +2.7%/6.6%). Its asset enhancement initiative (AEI), at B2 and L3 to increase space utilisation and F&B kiosks, is completed; we expect ROI in excess of 20% on a stabilised basis.

Office rental revenue from MLHF, PSAB and Mapletree Anson rose 7% yoy to S$50.7m in 1HFY17 while MBC1 generated an additional S$12.6m, based on slightly more than a month's recognition. This was due to positive average rental reversions of 14% for office space and higher occupancy of 98.5-100%.
MBC1 achieved an 8.5% increase in rents for its renewals.

MCT has 0.8% of retail and 3.8% of office leases to be re-contracted in 2HFY17, and a further 10.9% and 6.1%, respectively, in FY18.
We believe VivoCity would be able to continue delivering positive showing for its renewals due to its niche location.
Meanwhile, a lack of new business park supply post 2017 would be supportive of business parks rents and would have a positive knock-on impact on MBC1’s renewals, in our view.
Post fund-raising gearing is higher but still healthy at 37.3%.

We tweak our FY16-18 DPU estimates by -0.3% to 0.4% as we fine-tune the number of new units issued as well as the timing of completing the purchase of MBC1. However, our DDM-based target price remains unchanged at S$1.62.
We believe the addition of MBC1 to MCT’s portfolio will strategically enhance the trust’s size and stability.
Downside risks include a weaker-than-expected office rental market.

LOCK Mun Yee CIMB Research | Yeo Zhi Bin CIMB Research | http://research.itradecimb.com/ 2016-10-26

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