Mapletree Commercial Trust - CIMB Research 2015-10-21: Better operating performance

MAPLETREE COMMERCIAL TRUST N2UY.SI

Mapletree Commercial Trust - Better operating performance

2QFY16 performance lifted by higher revenue and lower operating expenses.
Portfolio occupancy rose in 2Q, and could to pick up further in 2H on higher committed take-up.
Recovery of shopper traffic and tenant sales growth in Vivocity.
Outlook remains stable, with 25.9% of leases to be renewed in 2HFY16-FY17.
Maintain Hold with a lower DDM-based target price of S$1.44.

MCT’s 2QFY3/16 DPU of 2.02 Scts, +2.5% yoy, was in line, at 25.1% of our FY16 forecast. The improvement came from increased revenue from Vivocity and higher rents from MLHF post its rent review in Dec 14.
Better cost control across its portfolio, largely due to savings from utilities consumption and tariff rates, also boosted NPI margin from 74.5% in 2QFY15 to 77% in 2QFY16. These more than offset higher interest expenses from slightly higher borrowing costs after refinancing of longer tenor debt.

Portfolio occupancy inched up to 96.6% with greater occupancy at Vivocity and Mapletree Anson. We expect occupancy to improve with higher committed occupancy at the properties.
Retail rental reversion was healthy at +13.2% over preceding levels while office renewals were 10.6% higher over previous rates.

Vivocity remained the largest revenue contributor, at S$47.3m in 2Q and accounting for 66.4% of MCT’s topline. The improved performance came on the back of a 13.2% positive rental reversion over preceding levels, plus positive impact from the completed AEI at Basement 1, as well as higher tenant sales (+5.5% yoy) and better shopper footfalls (+3.1% yoy).
More events as well as additional holidays helped increase shopper visits at this property, reversing the decline experienced in 1Q.

Looking ahead, the trust would continue to drive DPU growth by improving operational efficiency as well as optimising tenant mix. With the remaining 4.5% of retail and 25.1% of portfolio leases to be renewed in 2HFY16 and FY17, we anticipate earnings to remain relatively stable.
Balance sheet remains healthy with 36.4% gearing.

We maintain our Hold rating with a revised DDM-based target price of S$1.44 (higher cost of equity assumption: 8%). MCT is trading at 6.1% FY16 DPU yield and at 1.06x P/BV, in line with its peers.

LOCK Mun Yee CIMB Securities | http://research.itradecimb.com/ 2015-10-21

CIMB Securities SGX Stock Analyst Report HOLD Maintain HOLD 1.44 Down 1.54