Mapletree Commercial Trust - CIMB Research 2015-12-09: Stable earnings outlook

MAPLETREE COMMERCIAL TRUST N2UY.SI

Mapletree Commercial Trust - Stable earnings outlook

1HFY03/16 earnings performance lifted by Vivocity and higher rents from MLHF.
Portfolio occupancy rose in 2Q and could pick up in 2H due to higher committed take-up.
Recovery in shopper traffic and tenant sales growth in Vivocity in 2Q.
Outlook remains stable, with 25.9% of leases due to be renewed in 2HFY16-FY17.
With the stable outlook, we maintain Hold with unchanged DDM-based target price.

NPI for 1HFY16 improved 5.1% yoy. The improvement came from increased revenue from Vivocity and higher rents from Merrill Lynch Harbour Front (MLHF) post-rent review in Dec 2014.
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 the higher interest expenses from slightly-higher borrowing costs after the refinancing of longer-tenor debt.

Portfolio occupancy inched up to 96.6% in Sep, with greater occupancy at Vivocity and Mapletree Anson.
We expect occupancy to improve moving forward, with higher committed occupancy at the properties.
Retail rental reversion was healthy at +13.2% over preceding levels in 1HFY16, while office renewals were 10.6% higher than previous rates.

Vivocity remained the largest revenue contributor, accounting for 66% of MCT’s topline.
Vivocity’s rental revenue rose 4% yoy in 1HFY16 on the back of a 13.2% positive rental reversion over preceding levels, positive impact from the completed AEI at Basement 1, higher tenant sales (+5.5% yoy) and better shopper footfall (+3.1% yoy). More events and additional holidays caused an increase in shopper visits to this property, reversing the decline experienced in 1Q.

Looking ahead, the trust intends to continue to drive DPU growth by improving operational efficiency and optimising tenant mix.
With the 4.5% of retail and 25.1% of portfolio leases due to be renewed in 2HFY16-FY17, we anticipate earnings to be relatively stable in FY16-17.
Balance sheet remains healthy, with 36.4% net gearing at end-Sep.

Although MCT’s earnings outlook remains stable, we keep our Hold recommendation due to the moderation in rental reversions (Vivocity’s passing rents track closer to market levels) and office headwinds.
Our DDM-based target price of S$1.44 is unchanged.

LOCK Mun Yee CIMB Securities | http://research.itradecimb.com/ 2015-12-09

CIMB Securities SGX Stock Analyst Report HOLD Maintain HOLD 1.44 Same 1.44