Mapletree Commercial Trust - CIMB Research 2016-10-26: Still going strong

Mapletree Commercial Trust - CIMB Research 2016-10-26: Still going strong MAPLETREE COMMERCIAL TRUST N2IU.SI

Mapletree Commercial Trust - Still going strong

  • 2Q/1HFY17 DPU at 2.05/4.08 Scts, making up 25%/49% of our FY17 estimates.
  • VivoCity continues to deliver positive rental reversion, underpinned by higher tenant sales and shopper traffic.
  • Office renewals benefited from higher occupancy and positive rental uplift.
  • Manageable office and retail renewals over 2HFY17-18F.
  • Maintain Add, with an unchanged target price of S$1.62. 

Strong growth from organic and acquisition drivers 

  • MCT delivered a 23.6% yoy increase in 2QFY17 revenue to S$88.1m (US$63.4m) while distribution income rose 25.4% yoy to S$53.6m (US$38.6m), thanks to better performance across all its assets and maiden contributions from MBC1. 
  • However, DPU only inched up a marginal 1.5% yoy to 2.05 Scts due to dilution from new units issued as well as a timing difference between income recognition of MBC1 and issuance of private placement and preference units. Excluding the latter, DPU would have been up 9% yoy.

VivoCity continued to deliver strong showing 

  • 1HFY17 rental revenue at VivoCity rose 5% yoy to S$98.2m (2QFY17: S$49.8m), with reversions 13.8% higher over preceding levels (including tenant space renewals) and higher occupancy of 99.3%. 
  • Underlying operating conditions remained fairly robust, with tenant sales up 1.5% yoy and shopper traffic up 1.8% yoy (2QFY17: +2.7%/6.6%). Its asset enhancement initiative (AEI), at B2 and L3 to increase space utilisation and F&B kiosks, is completed; we expect ROI in excess of 20% on a stabilised basis.

Office rents benefited from higher occupancy and positive uplift 

  • Office rental revenue from MLHF, PSAB and Mapletree Anson rose 7% yoy to S$50.7m in 1HFY17 while MBC1 generated an additional S$12.6m, based on slightly more than a month's recognition. This was due to positive average rental reversions of 14% for office space and higher occupancy of 98.5-100%. 
  • MBC1 achieved an 8.5% increase in rents for its renewals.

Manageable office reversions in 2HFY17-18F 

  • MCT has 0.8% of retail and 3.8% of office leases to be re-contracted in 2HFY17, and a further 10.9% and 6.1%, respectively, in FY18. 
  • We believe VivoCity would be able to continue delivering positive showing for its renewals due to its niche location.
  • Meanwhile, a lack of new business park supply post 2017 would be supportive of business parks rents and would have a positive knock-on impact on MBC1’s renewals, in our view. 
  • Post fund-raising gearing is higher but still healthy at 37.3%. 

Maintain Add 

  • We tweak our FY16-18 DPU estimates by -0.3% to 0.4% as we fine-tune the number of new units issued as well as the timing of completing the purchase of MBC1. However, our DDM-based target price remains unchanged at S$1.62
  • We believe the addition of MBC1 to MCT’s portfolio will strategically enhance the trust’s size and stability.
  • Downside risks include a weaker-than-expected office rental market.

LOCK Mun Yee CIMB Research | Yeo Zhi Bin CIMB Research | http://research.itradecimb.com/ 2016-10-26
CIMB Research SGX Stock Analyst Report ADD Maintain ADD 1.62 Same 1.620