Mapletree Commercial Trust (MCT SP) - Maybank Kim Eng 2018-01-01: Mall Or Less

Mapletree Commercial Trust (MCT SP) - Maybank Kim Eng 2018-01-01: Mall Or Less MAPLETREE COMMERCIAL TRUST N2IU.SI

Mapletree Commercial Trust (MCT SP) - Mall Or Less

Initiate coverage with SELL, SGD1.45 TP 

  • Mapletree Commercial Trust (MCT) has delivered according to its 2011 IPO playbook by achieving average +23% 6-year rental reversions at VivoCity, S’pore’s largest mall, and 4.9% DPU CAGR from FY12-17 following its Mapletree Business City 1 (MBC1) acquisition in Jul 2016. However, we believe these are reflected in its valuations, now at 5.8% yield, with MCT the best performing REIT in 2017 despite structural sector headwinds. 
  • Looking ahead, we believe the market will need to price in a slowdown in rental reversions across its portfolio, and thus we look for MCT’s share price to lag its retail peers.
  • We find the shares overvalued and initiate with SELL and DDM-based TP of SGD1.45 (WACC: 7.1%; LTG: 1%).

Earlier rental reversions expected to moderate 

  • We see downside risk to market expectations of rental reversion prospects at MCT’s VivoCity, as well as its business park and office assets on the city fringe. 
  • VivoCity’s earlier strong performance with rental reversions averaging +23% since IPO was supported by low rentals (by 22% below comparable malls). 
  • Meanwhile, we see a moderation in its rental reversion outlook for its business parks given the narrowing gap to prime Grade A offices. We believe that the office recovery is underway, but uncertainties lie in new tenancies, and have imputed 6%, 3% and 11% reversions for its retail, business park, and office assets, respectively.

Portfolio more exposed to e-commerce competition 

  • We expect VivoCity to maintain its position as a destination mall, helped by improvement in shopper traffic given its size and location at Harbourfront’s interchange, and gateway to Sentosa Island. However, we see some degree of tenant retention risk, with a relatively higher proportion of its leases (35-42%) at risk to e-commerce competition. 
  • We see a stronger proxy to S’pore’s tourism rebound at Orchard Road malls.

Slower growth profile not priced into valuations 

  • Mapletree Commercial Trust (MCT) has had the longest period of outperformance, which was achieved on the back of strong double-digit rental reversions at its key VivoCity retail asset. 
  • With growth tapering from structural concerns, we see downside risk to DPU estimates.

Value Proposition 

  • Mapletree Commercial Trust (MCT) owns VivoCity, which is S’pore’s largest mall at 1.05b sqft NLA, and achieved 55.8m (+4.8% YoY) and 27.0m (+1.1% YoY) shopper traffic in FY17 and 1H18, respectively.
  • It is one of four S-REITs sponsored by Mapletree Investments, wholly-owned by Temasek Holdings.
  • Its SGD1.86b acquisition of Mapletree Business City 1 from its sponsor in Jul 2016 has enabled an exposure to business parks (21% of AUM, 13% of NPI), with favourable demand-supply dynamics.
  • Strong balance sheet with estimated SGD400m debt headroom, at 40% gearing, to pursue inorganic growth opportunities.

Financial Metrics 

  • DPU growth is expected to slow sharply from double-digit since IPO to 1-2% in FY18-20E.
  • Rental reversion should decelerate from strong double-digit to 3-5% in FY18-20E, as VivoCity rents catch up with market. 
  • Strong balance sheet with estimated SGD400m debt headroom, at 40% gearing, to pursue inorganic growth opportunities.

Swing Factors 


  • Earlier-than-expected pick-up in leasing demand for retail, office and business park space driving improvement in occupancy.
  • Better-than-anticipated rental reversions.
  • Accretive acquisitions or redevelopment projects.


  • Prolonged slowdown in economic activity could reduce demand for retail, office, and business park space resulting in lower occupancy and rental rates.
  • Termination of long-term leases contributing to weaker portfolio tenant retention rate.
  • Sharper-than-expected rise in interest rates could increase cost of debt and negatively impact earnings, with higher cost of capital lowering valuations.

Chua Su Tye Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2018-01-01
Maybank Kim Eng SGX Stock Analyst Report SELL Downgrade HOLD 1.45 Down 1.560