Mapletree Commercial Trust - Maybank Kim Eng 2015-09-08: Yield to Expand.


Yield to Expand 

  • Factor in lower retail market rents and office occupancy. 
  • FY3/16-18 DPUs cut by 0.4%/3.6%/6.0%. 
  • TP SGD1.11, from SGD1.43 on switch from DDM to yield target of 7.25%. 
  • D/G to SELL. 

What’s New 

  • MCT’s 1Q3/16 revenue growth has been lacklustre (-1.8% QoQ, +1.6% YoY, 23.4% of FY16F) and NPI met expectations due to cost savings. While Vivocity still boasted robust 14.4% rent reversions, we have concerns that this is unsustainable in the medium term under the current environment of poor tourist arrivals, weak local retail demand, and strong island-wide supply. 
  • Shopper traffic has consistently declined in the last 4 quarters and gathering pace, - 1.5%/-0.7%/-7.7%/-6.5% YoY. Tenant sales has also declined for the last 3 quarters -2.8%/-0.2%/-1.7%. 
  • MCT’s office portfolio has improved committed occupancy to 100% at Anson and 94.6% at PSA, but the office leasing outlook has weakened. 2016 also faces unprecedented supply at 3x annual demand. 
  • We cut 2016 occupancy at Anson and PSA by 3% and 2%. Factoring these vacancies and 2015-17 retail market rent assumptions of -1%/- 1%/+2% cuts our FY3/16-18 DPUs to 8.0/8.0/8.0 cts from 8.0/8.3/8.6 cts. 

What’s Our View 

  • We are changing our valuation methodology across our REITs from DDM to yield targets to better reflect the current de-rating environment. Our target for MCT is 7.25% vs 6.75% for CMT, 7% for FCT, and 7.5% for Starhill. 
  • MCT’s yield spread with CMT previously narrowed to almost 0bp when organic growth was high. As those days are behind us, the spread has widened to c.50bp. MCT should trade at a discount to both CMT and FCT, given that its portfolio is less defensive. 
  • As it is currently trading at 6.3%, we find that there is ample room for yield to expand. 
  • Applying our 7.25% target to FY16 DPU lowers our TP to SGD1.11 from SGD1.43. D/G to SELL.

Joshua Tan | http://www.maybank-ke.com.sg/ Maybank KE 2015-09-08
SELL Maintain SELL 1.11 Down 1.43