Mapletree Commercial Trust - CGS-CIMB Research 2019-12-09: Good Prospects, But Priced In

MAPLETREE COMMERCIAL TRUST (SGX:N2IU)

Mapletree Commercial Trust - Good Prospects, But Priced In

Lower retail supply will support VivoCity’s rental reversions.
Mapletree Business City (MBC) to continue to see strong demand, given its building quality and its strategic location at the city fringe, offering a cheaper alternative to the CBD.
We believe that the market has priced in the catalysts. The stock is trading at a narrower yield spread than its peers.
Maintain HOLD.

Despite the weaker consumer spending, MAPLETREE COMMERCIAL TRUST (SGX:N2IU)’s VivoCity continued to perform well in 1HFY3/20, with revenue and NPI improving 5.1% and 4.5% y-o-y, respectively, backed by strong rental reversions of +6.8%. The recent asset enhancement initiative (AEI) at B2 and Level 1 — the property’s fifth AEI — is expected to generate an ROI of ~40%, which will start to contribute in the full 3QFY3/20, underpinning VivoCity’s growth. The tapering retail supply in the next four years will also benefit Mapletree Commercial Trust.
On a long-term basis, VivoCity, as the largest mall in Singapore, should continue to deliver income growth, supported by ongoing tenant remixing and AEIs.

In tandem with the rising office rents, Mapletree Commercial Trust’s office/business park portfolio also delivered decent +0.7% rental reversions in 1HFY3/20. If not for the weaker rental reversion from Mapletree Anson, rental reversions would have been stronger. Committed occupancy for its offices/business parks remained high at 93-100% in 1HFY20, which was not surprising, given the strategic locations of most of its properties and more attractive rental rates compared with the offices in the CBD.
Mapletree Commercial Trust is acquiring Mapletree Business City 2 (MBC II), a long-awaited asset from its sponsor given its similarities to MBC I, which has been delivering stable rental income. Together with MBC I, MBC II is one of the rare business parks with Grade-A specifications that is located close to the CBD. This allows it to offer a cheaper alternative to the CBD offices, where demand may increase during times of uncertainties. We expect Mapletree Commercial Trust to deliver ~5% DPU growth in FY21, driven mainly by the acquisition of MBC II.

While we continue to like Mapletree Commercial Trust for its stable income and quality assets, we think that its shares are fully valued.
We also believe that another large acquisition is unlikely in the near term as it digests the large acquisition of MBC II.
See Mapletree Commercial Trust Share Price; Mapletree Commercial Trust Target Price; Mapletree Commercial Trust Analyst Reports; Mapletree Commercial Trust Dividend History; Mapletree Commercial Trust Announcements; Mapletree Commercial Trust Latest News.
Upside risk includes accretive acquisitions while downside risk includes weaker-than-expect rental reversion.

EING Kar Mei CFA CGS-CIMB Research | LOCK Mun Yee CGS-CIMB Research | https://www.cgs-cimb.com 2019-12-09

SGX Stock Analyst Report HOLD MAINTAIN HOLD 2.390 SAME 2.390