Mapletree Commercial Trust - CGS-CIMB Research 2019-07-25: A Good Start

MAPLETREE COMMERCIAL TRUST (SGX:N2IU)

Mapletree Commercial Trust - A Good Start

MAPLETREE COMMERCIAL TRUST (SGX:N2IU)’s 1QFY3/20 DPU of 2.3 Scts was in line at 25% of our full-year forecast.
Vivocity continued to deliver strong performance while its office segment continued to see strong demand.
Maintain ADD with an unchanged DDM-based Target Price of S$2.24.

MAPLETREE COMMERCIAL TRUST (SGX:N2IU)’s 1QFY3/20 gross revenue and NPI grew 3.3% and 2.8% y-o-y to S$112.1m and S$88.3m, respectively, thanks to stronger performances by Vivocity, Merrill Lynch Harbourfront (MLHF) and Mapletree Business City I (MBC I), partly offset by weaker Mapletree Anson (MA) and PSA Building (PSAB).
Actual occupancy was higher y-o-y at 97.3% while committed occupancy remains high at 98.9%.
Portfolio rental reversion was encouraging at 5.3%.
1Q DPU of 2.31 Scts was up 3.6% y-o-y, in line at 25% of our full-year forecast.

VivoCity achieved a 5.2% and 0.6% y-o-y improvement in 1QFY20 gross revenue and NPI respectively, on the back of strong 7.3% positive rental reversion following the completion of asset enhancement initiatives in FY19 and due to the effects of step-up rents. Shopper traffic declined 2.8% y-o-y while tenant sales fell 4% y-o-y, temporarily disrupted by the changeover of hypermarket from Giant to NTUC FairPrice which soft-opened on 16 Jul 2019.
The majority of new/expanding tenants located in the remaining 24k sq ft of the anchor space have also started operations since May 2019. Hence, we should see higher traffic flow and tenant sales from 2QFY20 onwards.

Higher office NPI in 1QFY20 was driven by higher contributions from MLHF and MBC I which offset the weaker income from PSAB and MA. The office/business park portfolio reported 0.3% positive rental reversion for 1QFY20.
MBC I’s occupancy remained high at 98.9% (+1.1% pt q-o-q) while MLHF was fully leased. Although PSAB and MA’s actual occupancy dropped 5.8% pts and 4.1% pts q-o-q respectively, occupancy rate for both assets remained high at > 90% with committed occupancy at 93.8% to 99%. PSAB and MA are Mapletree Commercial Trust’s smaller assets, contributing only 18.6% of 1QFY20 NPI.
Near-term outlook for the office sector remains robust, driven by tightening vacancy, and we anticipate the rental upcycle to continue. Mapletree Commercial Trust has 2% and 14.3% of office rental revenue to be re-contracted in FY20-21.

We maintain ADD on Mapletree Commercial Trust with an unchanged DDM-based Target Price of S$2.24. We expect the trust to continue to deliver DPU growth, underpinned by asset enhancement activities.
Potential re-rating catalysts include acquisitions and further asset enhancements, while isks are worse-than-expected retail and office rental reversion.

EING Kar Mei CFA CGS-CIMB Research | LOCK Mun Yee CGS-CIMB Research | https://research.itradecimb.com/ 2019-07-25

SGX Stock Analyst Report ADD MAINTAIN ADD 2.240 SAME 2.240