Mapletree Commercial Trust - CIMB Research 2017-07-27: A Modest Quarter

MAPLETREE COMMERCIAL TRUST N2IU.SI

Mapletree Commercial Trust - A Modest Quarter

Mapletree Commercial Trust (MCT)’s 1QFY3/18 DPU of 2.23 Scts is within our expectations at 25.5% of FY18 forecast.
VivoCity rental income rose 4.9% yoy on higher rents post AEI.
Office segment performance dragged by negative reversion at MBC1.
Healthy balance sheet with gearing at 36.4%.

MCT’s 1QFY3/18 DPU of 2.23 Scts is in line with our projections.
The 9.9% yoy improvement was due to a 46.9%/49.6% jump in revenue and NPI, respectively, from the acquisition of Mapletree Business City 1 (MBC1) and organic expansion at VivoCity, Mapletree Anson and PSA Bldg, partly offset by slightly weak contributions from Merrill Lynch Harbourfront (MLHF).
Portfolio occupancy ticked higher to 98.1%.

VivoCity posted a 4.9% yoy rise in 1Q rental income, driven by higher rents for new/renewed leases post the AEI works at B2, L1, L3 and step-up rents from existing leases. Shopper traffic and tenant sales grew 7.2%/3.8% yoy.
That said, rental reversion of 1.7%, although positive, was one of the weakest achieved in the last few years due to a challenging retail environment.
In the mid-term, the addition of a 3,000 sqm library and new AEI works should bolster the mall as a destination and improve returns.

NPI jumped with the inclusion of MBC1. Excluding the latter, NPI grew a slight 1.1% yoy. This segment recorded a negative rental reversion of -3.3%, dragged by a -5.9% rent revision at MBC1. Excluding this, the office portfolio would have enjoyed a 0.2% uplift.
MCT has a manageable 3.9% and 7.9% of office income expiring for the rest of FY18 and in FY19. In addition, higher occupancy of 91.6% at MLHF should also boost income. Hence, we expect this income segment to remain relatively stable.

Balance sheet remains healthy with gearing at 36.4% and no refinancing needs until FY19. An estimated 73.7% of debt is in fixed rates and all-in debt cost was relatively unchanged qoq at 2.67%.

We leave our FY18-20 DPU estimates unchanged and retain our DDM-based target price of S$1.79. We believe that MCT’s earnings are likely to remain stable, underpinned by improvements at VivoCity and office rental income.
In the longer-term, a lack of new business parks supply should also support business park rents.
Risks are continued drag on retail and office rents. MCT’s share price has underperformed relative to its peers and offers total return of 15%. Maintain Add.

LOCK Mun Yee CIMB Research | YEO Zhi Bin CIMB Research | http://research.itradecimb.com/ 2017-07-27

CIMB Research SGX Stock Analyst Report ADD Maintain ADD 1.790 Same 1.790