Mapletree Commercial Trust - UOB Kay Hian 2020-03-10: Anchored On Fundamental Positioning That Will Withstand The Test Of Time


Mapletree Commercial Trust - Anchored On Fundamental Positioning That Will Withstand The Test Of Time

  • The Sentosa-Brani Master Plan and expansion at RWS will increase shopper traffic and tenant sales at VivoCity. The development of the GSW will increase resident population within VivoCity’s catchment area and expand the pool of potential employees for its four business park/office properties in the Harbourfront area.
  • Mapletree Commercial Trust (SGX:N2IU)’s intrinsic value is anchored on the Harbourfront area (91.4% of portfolio valuation), which will evolve into a hub for the GSW.
  • Upgrade to BUY with a higher target price of S$2.62.


Prime beneficiary of Sentosa-Brani Master Plan.

  • Sentosa Island and Pulau Brani will be redeveloped into five distinct zones, namely the Vibrant Cluster, Island Heart, Waterfront, Ridgeline and Beachfront. Each zone will deliver unique experiences, such as nature and heritage trails, adventure attractions, eco-resorts, water shows and beach events. The Vibrant Cluster zone, which spans both islands, will have large-scale attractions. The Waterfront zone on Pulau Brani will house a “futuristic” discovery park.
  • Sentosa-Brani Master Plan will be rolled out over the next 20-30 years. Phase 1 of the Master Plan named “Sentosa Sensoryscape”, a two-tiered linkway connecting Resorts World Sentosa and the Southern Beaches, will be completed in 2022.

Prime beneficiary of expansion at RWS.

  • Resort World Sentosa (RWS) plans to invest S$4.5b to add 1.8m sf of new and exciting attractions to be gradually rolled out from 2020 to 2025. Universal Studios Singapore will add two new areas - Minion Park and Super Nintendo World. S.E.A. Aquarium will expand by three times its present size and would be rebranded as Singapore Oceanarium. New exhibits include prehistoric marine life and deep-sea creatures. The expansion will add two new hotels with a total of 1,100 rooms.
  • VivoCity sits on top of Harbourfront MRT station. Commuters heading to Sentosa Island and Pulau Brani are likely to alight at the Harbourfront MRT station (interchange MRT station for Circle Line and North East Line), before crossing over to Sentosa Island via monorail or cable car.

Harbourfront precinct at the heart of GSW.

  • Greater Southern Waterfront (GSW) covers 1,000ha of land stretching across the southern coastline from Pasir Panjang to Marina East which will be freed up for development after the City Terminals and Pasir Panjang Terminal relocate to Tuas Mega Port. Keppel Club will be one of the first developments in the GSW.
  • Up to 9,000 new residential homes (both public and private) could be built on the Keppel Club site when the current lease expires in 2021. Residents could easily access VivoCity via MRT through Labrador Park and Telok Blangah MRT stations on the Circle line.

Stability from business parks/suburban offices

  • Stability from business parks/suburban offices, which contributed 45.9% of gross revenue and 45.4% of NPI in 3QFY20. We estimate average passing rent at S$6.30psf pm and S$6.15psf pm respectively for MBC I and MBC II. Current asking rents for the two properties are at S$6.50-6.80psf pm.
  • The two properties are built to Grade A specifications and located a 10-15 mins drive away from the CBD, but rents are much more affordable at about half compared to that for Grade A office space within the core CBD at S$11.55psf pm. Majority of leases at MBC I and MBC II have annual rental escalation of 2-3%.

Google sinks its roots in Singapore.

  • MBC II houses Google’s Asia Pacific HQ. Google has been tapping into Southeast Asia with an internet penetration of 58% (North America: 88%, Northern Europe: 94%) to attract the next billion users. It has established a world-class local engineering team for product innovations, such as faster searches that uses less data, offline functionality for Google Maps and YouTube as well as translation of content into Asian languages. It will develop its Singapore office into a “Centre of Innovation” to power growth in the region. It will invest US$350m to build its third data centre in Singapore, which is expected to come online in 2020.
  • Google sees Singapore as a fertile hunting ground for recruiting top tech talents.

MBC II anchored by Google.

  • Since relocating from Asia Square in 2016, Google has steadily increased its leased area at MBC II, expanded its headcount, and invested significantly in its fit-out and interior design. Google currently occupies 680,000sf and contributed 58.1% of MBC II’s gross rental income. Other key tenants include Cisco Systems, Covidien and Credit Agricole.


  • Mapletree Commercial Trust benefits immensely from the development of the GSW and rejuvenation of Sentosa Island and Pulau Brani. It has five properties located in the Harbourfront area, which accounted for 91.4% of portfolio valuation in aggregate.

Short-term impact from COVID-19 outbreak.

  • Singaporeans have avoided crowded places and non-essential gatherings to minimise the risk of contagion. Shopper traffic at VivoCity has dwindled and shrunk by 30-35% since the DORSCON level was raised from Yellow to Orange on 7 Feb 20. Tenant sales have dropped by about 50% y-o-y in Feb 20. However, shoppers have adapted and returned over the last weekend. Mapletree Commercial Trust has reduced its exposure to VivoCity, its only retail property, from 45.5% to 36.7% of portfolio valuation post-acquisition of MBC II.
  • VivoCity achieved positive rental reversion of 6.7% in 9MFY20. Management targets positive rental reversion at low single-digits despite the COVID-19 outbreak.

Supporting retail partners.

  • Mapletree Commercial Trust has budgeted S$11m to support its retail partners, the bulk of which goes to grant of rental rebates of up to half a month to tenants at VivoCity. The support programme is four times the amount of property tax rebate (15% for retail properties) provided by Budget 2020.
  • VivoCity will also provide free parking during peak lunch and dinner hours. Other initiatives include support for advertising and promotional events.


  • We raise our FY21 DPU forecast by 0.9% due to property tax rebate of 15%, while the negative impact of S$11m from the support programme will be recognised in 4QFY20.



  • Development of tourism attractions at Sentosa and Pulau Brani, which will improve shopper traffic and tenant sales at VivoCity.
  • GSW will increase the population of residents staying within VivoCity’s catchment area. Its office buildings, namely MBC I, MBC II, PSA Building and Merrill Lynch Harbourfront (MLHF), will benefit from an expanded pool of potential employees.

Jonathan KOH CFA UOB Kay Hian Research | Peihao LOKE UOB Kay Hian | 2020-03-10
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