Mapletree Commercial Trust - OCBC Investment 2019-01-24: Time For A Breather

MAPLETREE COMMERCIAL TRUST (SGX:N2IU)

Mapletree Commercial Trust - Time For A Breather

MAPLETREE COMMERCIAL TRUST (SGX:N2IU) reported its 3QFY19 results which came in within our expectations.
Gross revenue rose 2.6% y-o-y to S$112.5m and this was driven largely by higher contribution from Bank of America Merrill Lynch HarbourFront (MLHF) and VivoCity, which saw revenue growth of 6.6% and 4.6%, respectively, but partially offset by a 0.8% dip in revenue at MBC I.
NPI grew at a smaller magnitude of 2.2% to S$87.9m as a result of higher property maintenance expenses, marketing and promotion expenses and property taxes. DPU of 2.33 S cents represented a growth of 1.3% on a y-o-y basis.
For 9MFY19, Mapletree Commercial Trust’s gross revenue and NPI grew 2.0% and 2.2% to S$331.0m and S$260.1m, respectively, with the latter forming 75.8% of our FY19 forecast. DPU inched up 0.9% to 6.83 S cents and this constituted 75.4% of our full-year projection.

Operationally, Mapletree Commercial Trust’s properties saw a ramp up in physical occupancy from 95.9% in 2QFY19 to 98.1%. This was led by Mapletree Anson (+6.5 ppt q-o-q), VivoCity (+5.2 ppt q-o-q) and PSA Building (+2.6 ppt q-o-q). MLHF remains fully occupied. Overall portfolio committed occupancy stood at a healthy 98.7%, as at 31 Dec 2018.
Rental reversions came in strong at +5.8% for 9MFY19 (including the effect of rent reviews), versus +2.2% in 1HFY19 (including rent review). The improvement came largely from the Office/Business Park segment, with a rental uplift of 8.7% (+10.3% if we exclude the effect of rent reviews).
However, tenant sales at VivoCity fell 1.2% to S$718.1m for 9MFY19 (1HFY19: -0.7%) and this was attributed to a transitory impact from the AEI and rigorous management of tenant mix. Mapletree Commercial Trust expects the mall’s momentum to recover once the changes are completed.
Shopper traffic was up 1.8% for 9MFY19.

We maintain our forecasts and fair value estimate of S$1.79 as results were in-line with expectations. Mapletree Commercial Trust’s share price has appreciated 5.5% since we initiated coverage on the stock on 28 Nov 2018 with a ‘BUY’ rating (see report: Mapletree Commercial Trust - The Best Of Most Worlds).
Based on its closing price of S$1.72 on 23 Jan 2019, distribution yields would be 5.3% for FY19F and 5.4% for FY20F, with potential total returns of ~9%.
Downgrade to HOLD on limited upside potential.

Andy Wong Teck Ching CFA OCBC Investment Research | https://www.iocbc.com/ 2019-01-24

SGX Stock Analyst Report HOLD DOWNGRADE BUY 1.790 SAME 1.790