Mapletree Commercial Trust - DBS Research 2019-07-26: Awaiting The Trigger From MBC Phase 2

MAPLETREE COMMERCIAL TRUST (SGX:N2IU)

Mapletree Commercial Trust - Awaiting The Trigger From MBC Phase 2

MAPLETREE COMMERCIAL TRUST (SGX:N2IU)'s 1QFY20 DPU rose 3.6% y-o-y to 2.31Scts supported by “best-in-class” assets.
VivoCity growing from strength to strength; operating metrics to improve on the opening of new anchor supermarket, NTUC Fairprice.
Office portfolio is resilient.
Awaiting the acquisition of MBC phase 2.

MAPLETREE COMMERCIAL TRUST (SGX:N2IU) reported 1QFY20 DPU of 2.31Scts (+3.6% y-o-y) which represents c.25% of our FY20 DPU estimates.
Revenue and net property income rose by 3.3% and 2.8% y-o-y to S$112.1m and S$88.3m respectively, of which core asset VivoCity (c.48% of revenues) continues to deliver steady returns (5.2% y-o-y increase in revenues).
Distributable income increased 4.1% to S$67.2m with DPU increasing by 3.6% y-o-y.

Operational metrics for VivoCity appear weak, which we believe is transitory and not a concern.
VivoCity’s 1QFY20 shopper traffic and tenants’ sales fell 2.8% and 4.0% respectively which we attribute largely to the brief impact from the changeover of Giant Supermarket to NTUC Fairprice, which opened in July-19. We see this as an improvement to the mall’s offerings and expect both traffic and sales to pick up.
1QFY20 revenue and NPI for the property increased 5.2% and 4.2% on the back of higher effective occupancy (99.1% versus 94.2% in 1QFY19 that was affected by AEI at space occupied by Giant supermarket), higher rents achieved for past renewals as well as step-up rents from existing leases.
The mall achieved positive rental reversion of 7.3% in 1QFY20, pulled up by the renewal of a mini anchor tenant.

Mapletree Business City I (MBC I) reported 3.8% and 4.4% y-o-y increase in 1QFY20 revenue and NPI, led by marginally higher occupancy (98.9% vs 98.6% in 1QFY19) and in-built rental escalations.
Mapletree Commercial Trust’s other office properties remain resilient. We, however, noted that Mapletree Anson posted a decline in 1QFY20 revenue and NPI of 5.4% y-o-y and 6.9% respectively but this was mainly due to compensation sums received a year ago. While Mapletree Anson’s occupancy fell to 92.7% in 1QFY20 vs 96.8% in 4QFY19 (due to a tenant vacating the property), we understand that the manager has successfully backed filled a majority of the space (committed occupancy is 99%) where the new lease is expected to commence in 3QFY20.
Despite a drop in effective occupancy at PSA Building (90.6% in 1QFY20 vs 95.4% in 1QFY19), revenue and NPI grew marginally due to the renewal of PSA’s lease at a higher base rent. We understand that some vacancies have been taken up (93.8% committed occupancy) and the new leases will begin in 2QFY20.

Average cost of debt inched up marginally q-o-q to 3.00% from 2.97% at end 4QFY19, in line with our estimates.
The proportion of fixed rate debt fell to 80.5% from 85% in 4QFY19.
Refinancing risks is also mitigated as there is no more than 20% of debt due in any financial year.

With 1QFY20 results in line with expectations, we maintain our BUY call with a street high Target Price of S$2.25.
We continue to like Mapletree Commercial Trust for its resilient income stream, best in class assets as well as an expected improvement in DPU. Our earnings forecast and Target Price have factored in the acquisition of MBC Phase 2 at the start of FY21.

Derek TAN DBS Group Research | Carmen TAY DBS Research | Rachel TAN DBS Research | https://www.dbsvickers.com/ 2019-07-26

SGX Stock Analyst Report BUY MAINTAIN BUY 2.250 SAME 2.250