Mapletree Commercial Trust - Maybank Kim Eng 2016-04-12: Visitor arrivals to mitigate

MAPLETREE COMMERCIAL TRUST N2UY.SI

Mapletree Commercial Trust (MCT SP) - Visitor arrivals to mitigate

We tweak FY3/16-18 DPUs 0.3-1.8% higher to 8.2/8.4/8.5 Scts, on account of being more positive on Vivocity as visitor arrivals gather steam, and office portfolio’s recovery in occupancy fully contributes.
But the main reason for our U/G to HOLD (TP revised +16% to SGD1.37) is the result of compressing our yield target from 7% to 6.1%, the mid-point between -1SD (5.5%) and the mean (6.7%), as long bond yields have collapsed in the wake of a negative interest rate environment.

MCT is currently trading at -1SD, and the discount to -1SD reflects our negative view of the retail sector.

For 9MFY3/16, revenue/DPU grew 1.5%/1.8%, mainly due to positive rent reversions, post AEI contributions from Vivo’s basement 1, and better occupancy from the office portfolio.
While the retail scene continues to be buffeted by growing supply and slowing labour conditions (see sector report), visitor arrivals have bottomed out and have actually begun to grow again, tracking annual growth of 2.5%. This is positive for Vivocity which apart from being a local catchment mall serves as a gateway to Sentosa.
We thus expect retail rent reversions to be respectably positive (FY3/16-18: 12.6%/10%/8%) albeit tapering, and occupancies of >
99% to be defended.

FY3/16 started with significant occupancy losses for the office portfolio, PSA and Anson were at 91%/87.5%. But these have since recovered to 94.3%/99.3%.
While this FY may see average occupancy at 95.5%, we expect FY3/17 to average 96.5%, keeping in mind a formidable supply situation is about to hit the market.
A low office lease expiry profile (FY3/17-19: 0.8%/10.1%/8.8%) mitigates that somewhat.

Taking into account our more positive view of Vivocity and full year contributions from recovered office occupancies, we tweak DPU 1.8%/0.3%/1.3% higher to 8.2/8.4/8.5 Scts.
Positive catalyst could be a stronger recovery in tourism numbers.

Joshua Tan Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2016-04-12

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