Mapletree Commercial Trust - Maybank Kim Eng 2016-04-28: Vivo growth offset by office

Mapletree Commercial Trust - Maybank Kim Eng 2016-04-28: Vivo growth offset by office MAPLETREE COMMERCIAL TRUST N2UY.SI 

Mapletree Commercial Trust (MCT SP) - Vivo growth offset by office risks; D/G to SELL 

Rising risk in the office portfolio; D/G to SELL 

  • MCT’s full-year results were in line, but sequential weakness in the final quarter threw up warnings signs for the office sector. 
  • We cut office occupancy assumptions by 2.2ppts in each forecast year, shaving DPU 2.4%-3.2%. 
  • Applying our 6.1% yield target to blended FY3/17-19 DPU lowers our TP to SGD1.35 (-1.5%). 
  • D/G to SELL. 
  • MCT is currently trading at tight valuations: 1SD from the mean at every measure, our yield peg is at the mid-point between the -1SD and the mean to reflect our cautious view of the retail and office environment. 

4Q results dragged by weak office 

  • MCT’s full-year results were decent enough with revenue/DPU growing 1.9%/1.6% YoY, forming 100.3%/98.6% of our estimates. 
  • 4Q revenue/DPU showed 2.8%/1% YoY growth, but their sequential declines are worth noting: revenue/DPU fell 1.1%/2.9%. This was due to surprise vacancy in the office portfolio, despite high commitments. 
  • Both PSA and Anson registered drops in occupancy, 92.8% (3Q: 94.3%) and 91% (3Q: 99.3%). 

Cut occupancy expectations for office 

  • Occupancy over the year has been especially volatile at Anson, starting from 87.5% to 99.3%, then crashing back down again. 
  • At PSA it has been ranging in the low-90s. Tenants have downsized, some have exited Singapore altogether. 
  • To add to the uncertainty, Harbourfront’s only tenant is set to give back 20% of its space by Dec 2016 in exchange for signing a longer lease on the remainder. 
  • As the upcoming deluge of office supply has not even hit the market yet, office occupancy for MCT may become an issue. 
  • Accordingly, we cut our office occupancies 2.2ppts/yr. 

Vivocity still has room to grow 

  • While the retail scene is challenging, Vivocity still posted 12% rent reversions and full occupancy. This is extraordinary considering a quality peer (CT SP) reported 1.4% reversions. 
  • To recap, Vivocity is: 
    1. Singapore’s largest mall, 
    2. gateway to Sentosa, 
    3. has no competition in its local catchment area, and 
    4. has low passing rent of SGD14 psfpm, lower than less prime malls in the high teens (see inside). 
  • Unfortunately, growth from Vivo could be dragged by the office segment.

Joshua Tan Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2016-04-28
Maybank Kim Eng SGX Stock Analyst Report SELL Downgrade HOLD 1.35 Down 1.37