Mapletree Commercial Trust - UOB Kay Hian 2019-06-20: Prime Beneficiary Of Rejuvenation Of Sentosa & Pulau Brani


Mapletree Commercial Trust - Prime Beneficiary Of Rejuvenation Of Sentosa & Pulau Brani

  • VivoCity is the gateway to Sentosa. It achieved positive rental reversion of 24.9% in FY12 after Resorts World Sentosa opened in Jan 11. It will similarly benefit from the government’s plan to develop new tourism attractions at Sentosa and Pulau Brani going forward.
  • We estimate the acquisition of MBC 2 would raise pro forma 2020 DPU by 2.8% to 9.65 cents.
  • Initiate coverage on MAPLETREE COMMERCIAL TRUST (SGX:N2IU) with BUY and target price of S$2.22.


  • MAPLETREE COMMERCIAL TRUST (SGX:N2IU) is a Singapore-focused REIT with the primary objective of investing long-term in a diversified portfolio of income-producing real estate used for office and/or retail purposes, as well as real estate-related assets. Mapletree Commercial Trust’s portfolio consists of five properties, namely VivoCity, MBC 1, PSA Building, Mapletree Anson and MLHF. These five assets have a total NLA of 3.9m sf with a total value of S$7,039m.


VivoCity is the largest retail mall in Singapore

  • VivoCity is the largest retail mall in Singapore with NLA of 1.1m sf. The mall is located at HabourFront MRT station, which is served by the North East and Circle MRT lines. VivoCity serves as the gateway to Sentosa (linked via monorail, cable car and Sentosa Boardwalk) and is within close proximity to Singapore Cruise Centre HarbourFront Terminal (home port for Costa Cruises, Royal Caribbean and Star Cruises). It benefits from rising visitor arrivals as 70% of all tourists visit Sentosa. Besides being positioned as a family and tourist mall, VivoCity also draws shopper traffic from neighbouring office buildings. VivoCity attracts shopper traffic of 55.2m/year.
  • VivoCity is the prime beneficiary of the rejuvenation of Sentosa and Pulau Brani. It achieved positive rental reversion of 24.9% in FY12 after Resorts World Sentosa opened in Jan 11. The mall benefits from the upcoming residential enclave at Greater Southern Waterfront, which increases the population of affluent consumers in its catchment area.

Continuous enhancements generate positive reversion of 3.5% in FY19.

  • Mapletree Commercial Trust converted 9,200sf of anchor space into speciality space on Levels 1 and 2. The space was taken up by existing tenants who are expanding and new-to-mall brands, who progressively commenced trading starting May 17. The AEI costs S$3m and provides ROI of 29% on a stabilised basis.
  • Mapletree Commercial Trust converted 32,000sf of space on Level 3 into a public library, which opened in Jan 19. The bonus GFA was utilised to build a 24,000sf extension at Basement 1 that houses 10 lifestyle and athleisure brands, which are higher-yielding specialty shops that opened in Jun 18. The AEI costs S$16m and provides an ROI of more than 10%. Occupancy had recovered by 6.3ppt y-o-y to 99.4% as of Mar 19.


Office & business park provides diversification.

  • Mapletree Business City 1 (MBC1), which accounted for 30% of NPI in FY19, has built-in rental escalation of 2-3% per year. Passing rent is S$6.50psf pm, less than spot rent of S$7.90psf pm for Grade B offices Island-wide, and S$5psf pm for business parks in 1Q19. 40% of MBC 1’s leases will expire in FY21.
  • A major tenant at PSA Building has extended its leases, which boosted rental reversion to 10.3% for office/business parks in FY19. Occupancy at Bank of America Merrill Lynch HarbourFront (MLHF) has maintained at 100%.


Support from sponsor.

  • Sponsor Mapletree Investments has granted right of first refusal (ROFR) to Mapletree Commercial Trust for seven retail/office/industrial properties in Singapore, including MBC 2 and Habourfront Centre. MBC 2 has NLA of 1.2m sf built to Grade A specifications. Occupancy has stabilised at almost full occupancy.

Google is anchor tenant at MBC 2.

  • According to The Business Times, Google has taken up two office blocks totalling 150,000sf at MBC 2, which houses its engineering hub in Singapore with 1,000 employees. The team in Singapore is responsible for:
    1. translation of content into Asian languages,
    2. enabling Google Map and YouTube for offline usage in countries where mobile data is limited or expensive, and
    3. Virtual Reality (VR) and Augmented Reality (AR) projects.
  • Google sees Singapore as an ideal location due to its business friendly policies. The engineering team in Singapore is said to be growing fast.

Potential acquisition of MBC 2 is DPU accretive.

  • We estimate the acquisition of MBC 2 would raise pro forma 2020 DPU by 2.8% to 9.65 S cents based on these assumptions:
    1. MBC 2 is valued at S$1,345m or S$1,152psf based on cap rate of 5.0%.
    2. The debt and equity mix is 50:50. Mapletree Commercial Trust takes up a loan of S$672.5m at an interest rate of 3.0%. Mapletree Commercial Trust raises S$672.5m by placing out 350m new units at an issue price of S$1.92. We see gearing rising marginally from 33% to 35%.
    3. Passing rent is S$6.00psf.


Introducing large format fashion outlets and new F&B concepts.

  • Zara, Pull & Bear and Superdry opened large format concept stores in 1QFY19. Mapletree Commercial Trust also introduced new F&B concepts, such as Beauty In The Pot (steamboat), Hans Im Gluck (burger bar from Munich), Paradise Teochew and M&S Food, in 3QFY19.

New anchor tenant NTUC Fairprice.

  • NTUC Fairprice’s new 91,000sf integrated store (replaces Giant and Cold Storage), comprising FairPrice Xtra hypermarket, Unity pharmacy and Cheers convenient store, commenced fit-out works in Apr 19. Mapletree Commercial Trust recovered 24,000sf of anchor space on Level 1 and Basement 2, which have been taken up by existing tenant Uniqlo and new lifestyle and mid-range F&B offerings.


  • Our target price of S$2.22 is based on DDM (required rate of return: 6.25%, terminal growth: 2.0%).

Jonathan KOH CFA UOB Kay Hian Research | Peihao LOKE UOB Kay Hian | https://research.uobkayhian.com/ 2019-06-20
SGX Stock Analyst Report BUY INITIATE BUY 2.22 SAME 2.22