Mapletree Commercial Trust - Maybank Kim Eng 2019-10-16: Acquisition Priced In

MAPLETREE COMMERCIAL TRUST (SGX:N2IU)

Mapletree Commercial Trust - Acquisition Priced In

MAPLETREE COMMERCIAL TRUST (SGX:N2IU)’s 2Q20 DPU was in line with consensus and our estimates; we have raised FY21 DPU by 4.6% to factor in the acquisition of Mapletree Business City II (MBC II) after the 15 Oct EGM.
Our DDM-based Target Price rises to SGD2.35 (COE: 6.1%, 2.0%). Maintain HOLD with the shares fairly valued to slightly stretched on the acquisition anticipation. See Mapletree Commercial Trust's share price; Mapletree Commercial Trust's dividend history.

We prefer FRASERS CENTREPOINT TRUST (SGX:J69U) (BUY, Target Price SGD2.80) for its higher yields, stronger DPU growth profile.

Mapletree Commercial Trust's 2Q20 revenue and NPI increased by 1.9% y-o-y and 1.7% y-o-y, with better contributions across all properties, except Mapletree Anson (revenue and NPI down 17.8% y-o-y and 21.7% y-o-y). See Mapletree Commercial Trust's announcements.
Mapletree Commercial Trust’s portfolio occupancy was down q-o-q from 97.3% to 96.1% with weaker transitory occupancy at Mapletree Anson (from 92.7% to 75.1%), but committed occupancies for all assets stayed high at 93.1%-100.0%.
Rental reversion was at +6.8% for its retail segment (VivoCity) versus +7.3% in 1Q20, and at +0.7% for its office/ business park segment, up from +0.3% earlier.
Management attributed 2.7% of its leases (by gross rental income) to WeWork, with the latter’s tenancies at PSA Building and Mapletree Anson.

VivoCity’s revenue and NPI increased 5.1% y-o-y and 4.9% y-o-y, even as shopper traffic and tenant sales fell 2.8% y-o-y and 2.0% y-o-y. We expect stronger sales growth momentum in the coming quarters, led by:
1. a higher contribution from grocer NTUC Fairprice (91k sf across level 1 and basement since Aug 2019);
2. new F&B tenancies (24k sf); and
3. the expanded Uniqlo space (since Sep 2019).
Management shared that F&B tenancies delivered +10% in rental reversions, and is guiding for positive reversions for the mall for FY20-21, in line with our expectations.

Post the MBC II deal, Mapletree Commercial Trust’s three best-in-class assets - VivoCity, MBC I & II - contribute 80% of its AUM and NPI, but tenant concentration risks have also risen with Google occupying 13.5% of its enlarged NLA.
We see its low 31.7% gearing and SGD1.7b in debt headroom supporting further opportunities from its 1.8m sf NLA sponsor pipeline, but potential deals are likely towards the medium-to-longer term.

Chua Su Tye Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2019-10-16

SGX Stock Analyst Report HOLD MAINTAIN HOLD 2.35 UP 2.100