Mapletree Commercial Trust - OCBC Investment 2019-07-26: Steady Start But Positives Likely Priced In

MAPLETREE COMMERCIAL TRUST (SGX:N2IU)

Mapletree Commercial Trust - Steady Start But Positives Likely Priced In

MAPLETREE COMMERCIAL TRUST (SGX:N2IU) reported a steady set of 1QFY20 results, recording a 3.3% and 2.8% y-o-y increase in its gross revenue and NPI to S$112.1m and S$88.3m, respectively. The latter formed 25.1% of our FY20 forecast.
Growth was largely driven by higher rental income from VivoCity and MBC I, but partially offset by a weaker performance from Mapletree Anson (revenue and NPI fell 5.4% and 6.9% y-o-y, respectively, due to compensation sums received in 1QFY19).
DPU rose 3.6% y-o-y to 2.31 S cents, meeting our expectations as it accounted for 25.0% of our full-year forecast.

During the quarter, Mapletree Commercial Trust delivered healthy rental reversions of +7.3% for its Retail segment, while Office/Business Park was flat (+0.3%).
There were some occupancy pressure for a couple of its office assets, namely PSA Building (PSAB) and Mapletree Anson, which saw actual occupancy declines of 5.8 ppt and 4.1 ppt q-o-q, respectively. However, some replacement tenants were secured, as committed occupancy for PSAB stood at 93.8%, while that of Mapletree Anson was 99.0%, as at 30 Jun 2019.
VivoCity’s shopper traffic and tenant sales fell 2.8% and 4.0% y-o-y, respectively, but this was attributed to transitory impact as there is an ongoing changeover of its hypermarket tenant. Anchor Tenant NTUC FairPrice has since successfully soft-launched its 91k sq ft integrated store on 16 Jul this year.

Mapletree Commercial Trust’s gearing ratio was 33.1%, as at 30 Jun 2019, leaving debt headroom of ~S$809m before reaching the 40% level, based on our estimates. The market continues to anticipate the potential acquisition of MBC II (committed occupancy of 99% as at 31 Mar 2019) from its sponsor, which we believe could cost ~S$1.4b-S$1.5b. DPU accretion is highly likely, in our view.
After adjustments, which include lowering our risk-free rate assumption from 2.3% to 2.0%, we derive a higher fair value estimate of S$1.89 (previously S$1.85).
Mapletree Commercial Trust’s share price has hit an all-time high of S$2.10 (as at 25 Jul close), we believe positives are priced in. Downgrade to SELL.

OCBC Research Team OCBC Investment Research | https://www.iocbc.com/ 2019-07-26

SGX Stock Analyst Report SELL DOWNGRADE HOLD 1.89 UP 1.850