Mapletree Commercial Trust - DBS Research 2016-04-28: Go Vivo!

SGinvestors.io

MAPLETREE COMMERCIAL TRUST N2UY.SI 

Mapletree Commercial Trust - Go Vivo! 

• FY15/16 DPU up 1.6% y-o-y, in line. 
• VivoCity led the performance with over 12% rental reversion and close to full occupancy. 
• PSA Building saw improvements in committed occupancy and MLHF has renewed its master lease. 
• Maintain BUY, TP revised to S$1.58, FY17-18F yield of 5.8% 

Best of both worlds. 

• We expect Mapletree Commercial Trust’s (MCT) star asset - VivoCity (c.65% of NPI) to remain a key driver for the trust in the immediate term. 
• Through the years, VivoCity has proven to be one of the best performing malls in Singapore by virtue of its popularity with families and close proximity to Sentosa. 
• In addition, the low level of office lease expiries until FY17/18 minimizes potential volatility in rents and occupancy when a large supply of office space enters the CBD in the next 1-2 years. 

Maintain BUY, revised TP of S$1.58. 

• Manager focussing on improving the trading performance of Vivocity. 
• Over the next 18 months, over 30% of MCT’s leases will be due for renewal, with a large proportion coming from VivoCity. 
• Rather than being a risk, we believe that the large number of expiries could result in positive earnings surprise, as it will give the Manager flexibility in reconfiguring the mall and refreshing the tenant mix, in order to maximise trading performance. 

Retail reversions continue to outperform other retail S-REITs. 

• Retail rental reversions of over 12% demonstrate the strong retailer demand at VivoCity, supported by robust and consistent foot traffic. 
• Occupancy costs are at the 18% level, which the Manager considers comfortable. 

Valuation: 

• We revised our DCF-backed target price to S$1.58, with a lower WACC of 6.33% arising from lower interest costs assumptions vis-à-vis our earlier expectations. 
• At current price, the stock offers 5.8% dividend yield for FY17-18F, and total potential return of 13.5%. 
• Maintain BUY recommendation. 

Key Risks to Our View: 

Vacancy risk 

• While large lease expiries give the Manager the flexibility in refreshing the tenant mix, changes have to be timed carefully. Should any of the Manager’s plans involve its anchor tenants, there could be some disruptions to the trading of the mall as well as higher frictional vacancies in the near term. 

Derek Tan DBS Vickers | Mervin Song CFA DBS Vickers | http://www.dbsvickers.com/ 2016-04-28

DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 1.58 Up 1.40