Mapletree Commercial Trust - Maybank Kim Eng 2018-10-26: More In Store?

MAPLETREE COMMERCIAL TRUST (SGX:N2IU)

Mapletree Commercial Trust - More In Store?

We fine-tune forecasts following Mapletree Commercial Trust's 2Q19 results. We raise DPU by 2% as we see a stronger rental outlook for VivoCity, given its sound destination-mall positioning.
Meanwhile, an asset-swap opportunity has materialised for its diversified commercial portfolio. Narrowing office cap rates could imply a SGD125m revaluation gain from Mapletree Anson, while a potential MBC II acquisition could also boost DPU by 9-10%.
Our new DDM-based Target Price is SGD1.60 (COE: 7.5%, LTG: 2%).
Upside risks could stem from these arising DPU growth levers.

Mapletree Commercial Trust's 2Q19 DPU rose 1.3% y-o-y on the back of 50% of our FY19E forecast.
Occupancy dipped from vacancies at MBC I (from 8.6% to 7.8%) and PSA Building (5.4% to 3.5%) as commitments stayed at VivoCity jumped to +41% from +21% in 1Q19 as shopper traffic increased 58% y-o-y and tenant sales, 28% y-o-y. Management attributed this to Disney at its Sky.

We raise rental assumptions for VivoCity. VivoMart will vacate 115k sf of space by 1QCY19, with the space to be replaced by Fairprice. We expect high-single-digit reversion.
We expect destination malls to continue to draw shopper traffic, backed by strong tourism growth. The latter was up 7.5% y-o-y in 8M18 vs +6.2% y-o-y in 2017.
Meanwhile, strong leasing at Changi’s Project Jewel, which is 90% pre-committed to its opening in Mar 2019 should reduce overall market vacancy risk.

Gearing of 34.8% suggests SGD600m in debt headroom to a 40% limit for potential deals, with MBC II as front-runner. We estimate DPU accretion of 9-10%, assuming 55:45 equity-debt funding.
Meanwhile, Mapletree Anson was valued at a 3.7% cap rate or SGD2,123 psf as at end-Mar 2018. This remains conservative relative to recent market deals.
CapitaLand Commercial Trust’s Singapore assets rose 1.3% in its half-yearly review, in line with narrowing office-cap rates. CapitaLand Commercial Trust also divested Twenty Anson in July at a 2.7% NPI yield, for SGD516m or SGD2,503 psf. We believe a potential divestment of Mapletree Anson at similar capital values could result in a SGD125m gain, while a closely-timed divestment of this lower-yielding asset could increase debt headroom for further DPU accretion.

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 Research | https://www.maybank-ke.com.sg/ 2018-10-26

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