Mapletree Commercial Trust - CIMB Research 2016-07-27: Driven by organic growth

MAPLETREE COMMERCIAL TRUST N2UY.SI

Mapletree Commercial Trust - Driven by organic growth

1QFY17 DPU of 2.03 Scts is in line with our FY17 forecast at 24.3%.
Improvement across the board from Vivocity as well as office assets underpinned performance.
Completion of AEI at Vivocity in Jul 16 should continue to drive bottomline while minimal office renewals should provide a stable outlook.
Private placement of 364.88m new units and 362.82m preferential offering to raise gross proceeds of S$1,018.8m (US$749m) to part fund MBC P1 acquisition.

MCT reported a 5.2% rise in topline to S$73.4m (US$54m), backed by improved performance at Vivocity, PSAB and Mapletree Anson and higher overall portfolio occupancy of 97.8%. Accordingly, NPI rose 3.7% to S$56.3m.
Distributable income of S$43.4m, +2.1% yoy, translates into DPU of 2.03 Scts. This makes up 24.3% of our FY17 forecast, which includes contributions from the proposed MBC P1 acquisition.

Rental reversions at Vivocity rose 12%, with a high retention ratio of 94.3% in 1Q. Tenant sales remained fairly flat at S$219m while shopper traffic dipped 3.6% yoy to 12.5m. Completion of its second AEI at end-Jul 16 should raise contributions.
Increased F&B offerings in B2 are already fully pre-committed and ROI is expected to surpass 20%. It has another 7% and 16.1% of retail income to be renewed in FY17 and FY18, respectively, and positive rental reversions should continue to drive the bottomline.

Rental reversions for its office properties averaged +14% in 1Q. Office contributions also expanded as occupancy at PSAB rose 3.7% pts to 96.5% while Mapletree Anson saw its take-up rising to 94.7%.
MCT has minimal office renewals of 1.9% and 3.9% in FY17 and FY18, respectively, and this should translate into a stable income outlook.

MCT has launched an equity fund-raising exercise to part fund the purchase of MBC P1. It plans to offer 364.88m new units at S$1.41-1.45/unit under a private placement and a non-renounceable preferential offering of 362.82m new units at S$1.39-1.43/unit on 17 units for every 100 existing units. This exercise should be complete towards end-Aug 16 and will raise gross proceeds of S$1,018.8m.
The acquisition of MBC P1 is expected to boost DPU by 3.2%.

We tweak MCT’s FY17-19 DPU estimates marginally to update for this set of results and to update on the funding structure for the MBC P1 acquisition. However, our DDM-based target price remains unchanged at S$1.62.
We believe the purchase of MBC1 should strategically enhance its portfolio in terms of size and stability. Downside risks to our call include weaker office market.

LOCK Mun Yee CIMB Securities | YEO Zhi Bin CIMB Securities | http://research.itradecimb.com/ 2016-07-27

CIMB Securities SGX Stock Analyst Report HOLD Maintain HOLD 1.62 Up 1.62