Mapletree Commercial Trust (MCT SP) - Maybank Kim Eng 2018-01-26: Mall Moderation Not Priced In

Mapletree Commercial Trust (MCT SP) - Maybank Kim Eng 2018-01-26: Mall Moderation Not Priced In MAPLETREE COMMERCIAL TRUST N2IU.SI

Mapletree Commercial Trust (MCT SP) - Mall Moderation Not Priced In


Results in line, maintain forecasts, Target Price

  • Mapletree Commercial Trust (MCT)’s 3Q18 results were in line with MKE and the street, with DPU at S2.90cts, up 0.9% y-o-y and 2.7% q-o-q. 
  • We have kept estimates and DDM-based SGD1.45 Target Price (WACC: 7.1%, LTG: 1.2%) intact. 
  • We are negative on retail S-REITs, given structural challenges from e-commerce disruption and sales leakage. 
  • We see downside risk to market expectations of rental reversion prospects at VivoCity. Mapletree Commercial Trust remains our key SELL given a more exposed tenant portfolio, moderating rental profile, and lofty valuations.



VivoCity, MBC I were key drivers

  • Mapletree Commercial Trust (MCT)'s 3Q18 revenue/ NPI rose 0.8% y-o-y/ 1.9% y-o-y, from stronger contribution  at VivoCity and MBC I. DPU rose 0.9% y-o-y to S2.90cts, with YTD DPU of S6.77ct, up 6.4% y-o-y achieving 76% of our full-year. 
  • Portfolio occupancy fell q-o-q from 97.6% to 94.6% due to transitional vacancies at VivoCity and MBC I. 
  • VivoCity’s +2.3% rental reversion helped support overall portfolio rental reversion of +1.2%. AEI works at VivoCity - to add a public library at Level 3 and extend Basement 1 – remain underway. VivoCity saw 1.2% y-o-y growth in tenant sales YTD, even as shopper traffic fell 1.2% y-o-y.


Portfolio more exposed to e-commerce competition

  • VivoCity’s positioning as a destination mall is likely to be sustained given its size and location (Harbourfront’s interchange, and gateway to Sentosa Island). However, we see some extent of retention risk, as a relatively higher share (35-42%) of its leases are exposed to e-commerce competition, of which 16.7% and 14.7% are to be renewed in FY19 and FY20. 
  • We see a stronger proxy to Singapore’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. But with growth tapering from structural concerns, we see downside risk to DPU estimates.



Swing Factors


Upside

  • 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. 

Downside 

  • 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/ 2018-01-26
Maybank Kim Eng SGX Stock Analyst Report SELL Maintain SELL 1.450 Same 1.450



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