Mapletree Commercial Trust - DBS Research 2016-10-27: An Eye on the Future

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MAPLETREE COMMERCIAL TRUST N2IU.SI

Mapletree Commercial Trust - An Eye on the Future

• Strong quarter with incremental earnings from MBC I as well as improvement in existing assets.
• DPU up only 1.5% due to timing differences, full impact of MBC I will kick in next quarter.
• Double-digit rental reversion is commendable.
• TP lifted to S$1.62, DPU raised by 3-4%.

MBC I is a rare gem. 

• We believe the acquisition of Mapletree Business City – Phase 1 (MBC I) represents a rare gem, not only due to the scarcity of supply in Grade A Business Parks, but also adds diversification to the portfolio by adding a new property type. 
• After the acquisition, the portfolio breakdown by valuation will be 22.2% for business parks, 58.2% office and 42.1% retail from 40.2% office and 59.8% retail.
• This acquisition is expected to be DPU accretive, and we have raised our TP for Mapletree Commercial Trust (MCT) to S$1.62 and forecast DPU by 2-4% which translates to DPU growth of 7-10% for the next two years from the pre-acquisition level in FY16.

VivoCity a preferred retail destination: 

• As anticipated, the REIT has utilised the opportunity of lease expiries to rebalance the tenant mix at VivoCity. This has enabled it to achieve a whopping rental reversion of 13.8% in 1H17 without compromising on the occupancy rate.

Adequate debt headroom: 

• As the S$1.8bn acquisition of MBC I was financed by approximately 45/55 split in debt and equity, gearing edged up to 37.3% from 35.0%, which translates to a debt headroom of S$487.9m based on the regulatory cap of 45%. This gives the REIT adequate debt headroom to finance future asset enhancement initiatives.

Valuation

• We revised our DCF-backed target price to S$1.62 as a result of earnings accretion from MBC I. 
• DPU forecast has been raised by c.4% on an annualised basis. 
• The stock offers a dividend yield of 5.6%-5.8% for FY17-18F at the current price, and a total potential return of c.11%. 
• BUY call maintained.

Key Risks to Our View

Weaker operational performance from VivoCity 

• While VivoCity’s performance has been very encouraging, the mall is gradually phasing into a matured stage with potential decline in growth ahead. 
• Nonetheless, the acquisition of MBC I, still a segment in high demand, would mitigate the slowdown in growth at VivoCity.

Derek Tan DBS Vickers | Mervin Song CFA DBS Vickers | http://www.dbsvickers.com/ 2016-10-27

DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 1.62 Up 1.580