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

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%.
  • Maintain Add with an unchanged DDM-based TP of S$1.79.

1QFY3/18 results highlights 

  • 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%.

Shopper traffic and tenant sales up yoy 

  • 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.

Excluding MBC1, office rents achieve a slight positive reversion Office/business parks 

  • 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.

Strong balance sheet 

  • 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%.

Retain Add rating 

  • 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