Mapletree Commercial Trust - Strong Performer
- MCT’s FY3/17 DPU of 8.62 Scts came in ahead of expectations, making up 103.4% of our forecast.
- The improved performance was felt across the board as well as from MBC1.
- We expect rental reversions at VivoCity to remain positive, although more muted going forward.
- Office rents likely to be underpinned by stable business park contributions.
- Upgrade to Add with a higher target price of S$1.70.
4Q/FY17 results came in slightly ahead of our expectations
- MCT reported 4QFY17 DPU of 2.26 Scts, coming in slightly ahead of our projections, representing 12% yoy growth. The better results were supported by a 47% yoy jump in revenue, thanks to the acquisition of MBC1.
- Additionally, all the properties across the portfolio also reported an improvement in contributions.
- FY17 DPU of 8.62 Scts exceeded our estimates by 3.4%.
- The better asset performance led to a 2.2% valuation uplift, with no change in cap rates, translating to a book NAV of S$1.38.
Vivocity continues to perform well
- FY17 gross revenue and NPI from Vivocity rose 5%/3.4% yoy while occupancy remained high at 99%.
- Shopper traffic grew by a stronger 4.8% yoy to 55.8m while tenant sales crept up 1.3% yoy to S$952m. Retail rents saw a 13.5% upward revision on renewal.
- Going into FY18-19, MCT has 8.2% and 18% of retail leases to recontract. We expect rent renewals to be more muted, but positive, going forward as the retail climate remains challenging.
Office/business parks component offers stability
- The office/business parks portfolio enjoyed an 8.5% rental uplift on renewals while occupancy at MBC1 and PSA Building held steady at 99% and 98.3%, respectively.
- Committed occupancy at MLHF rose to 91.6% as part of the vacated space was released.
- The trust has 4.5% and 7.8% of office leases to be renewed in FY18-19. A lack of new business parks supply should support business park rents.
Strong balance sheet with no near-term refinancing needs
- Its balance sheet remains healthy with gearing dipping slightly to 36.3% with a higher portfolio value. 81.2% of its debt cost has been hedged and there is no refinancing needed until FY19.
Upgrade to Add
- We tweak our FY18-19 DPU up by 0.5-1.6% to adjust for the better-than-expected performance and introduce our FY20 estimates. We raise our DDM-based target price to S$1.70 as we roll forward our projections as well as lower our Singapore discount rate. Upgrade to Add from Hold.
- We like MCT’s portfolio which has a good blend of resilience (through the more stable business park rents) as well as growth coming from Vivocity.
- MCT offers total return of c.14%. Risks include slower-than-projected rental uplift.