Mapletree Commercial Trust - CIMB Research 2016-04-27: Retail up, office down

Mapletree Commercial Trust - CIMB Research 2016-04-27: Retail up, office down MAPLETREE COMMERCIAL TRUST N2UY.SI 

Mapletree Commercial Trust - Retail up, office down 

  • Results in line; 4QFY3/16 25% of our full-year forecast. 
  • Vivocity enjoyed robust rental reversions, higher shopper footfalls and tenant sales; these underpin future performance. 
  • Weak office showing; to drive occupancy to improve income stream. 
  • Retail lease renewals in FY17-18; growing office occupancy key to near-term growth. 
  • Maintain Hold with slightly higher target price of S$1.48. 

Results within estimates, making up 25% of full-year forecast 

  • MCT’s 4QFY16 revenue rose 2.8% yoy to S$73m while NPI rose a higher 3.5% yoy to S$55m on better cost containment, partly offset by higher interest costs. 
  • Distribution income of S$42.9m, +1.8% yoy, translates to a DPU of 2.02 Scts (+1% yoy). 
  • Similarly, for FY16, it delivered a distribution income of S$172.5m (DPU: 8.13 Scts). 
  • The trust revalued its portfolio to S$1.30/unit, with cap rates remaining unchanged. 

Vivocity continued to deliver 

  • Vivocity recorded 4Q rental revenue of S$48.5m and full-year income of S$191.2m (+3.7% yoy) on +12.3% rental reversion and income from newly created 15ksf of space in B1. 
  • During the quarter, it also enjoyed a 5.8% rise in tenant sales and shopper traffic. 

Committed occupancy remained high at 99.9%. 

  • The trust has 15.3% and 16% of retail leases to be renewed in FY17 and FY18, respectively, including some anchor tenant space. As such, we think MCT would likely be able to achieve double-digit rental uplift. 

Weaker office performance 

  • Office rentals of S$96.6m for FY16 made up c.34% of total revenue and experienced a 1.6% decline yoy, dragged down by contributions from Mapletree Anson (MA) and PSAB. This was partly offset by higher income from MLHF. This was despite an 8.1% rental reversion uplift during the period. 
  • Occupancy at MA and PSAB stood at 91% and 92.8%, respectively. 

Driving growth via retail AEI and boosting office occupancy 

  • Looking ahead, MCT would continue to drive retail rental revenue through a S$6.1m AEI exercise at Vivocity B2, to be completed in 1HFY17. It would also introduce new brands and retail concepts, and organise more A&P activities to grow shopper footfalls. 
  • Within the office portfolio, tenant Bank of America Merrill Lynch (BAML) has renewed and restructured its lease at MLHF in Apr 16. 
  • With only 0.6% of leases due in FY17 and 10.4% in FY18, the trust would continue to work to boost occupancy at PSAB and MA. 

Maintain Hold rating 

  • Our DDM-based target price is raised to S$1.48 as we roll forward our valuation. 
  • We also introduce our FY19 forecasts. 
  • MCT is trading at 1.13x P/BV and offers FY17 DPU yield of 5.6%. 
  • MCT’s balance sheet is healthy with a gearing of 35.1% and has long earnings visibility of 3.5 years WALE. 
  • However, with the recent run-up in share price, we see limited upside in the short term and retain our Hold rating.

LOCK Mun Yee CIMB Securities | YEO Zhi Bin CIMB Securities | http://research.itradecimb.com/ 2016-04-27
CIMB Securities SGX Stock Analyst Report HOLD Maintain HOLD 1.48 Up 1.44