Mapletree Commercial Trust - CGS-CIMB Research 2020-04-24: Reiterate HOLD, With A Higher Target Price Of S$1.94

MAPLETREE COMMERCIAL TRUST (SGX:N2IU)

Mapletree Commercial Trust - Reiterate HOLD, With A Higher Target Price Of S$1.94

Mapletree Commercial Trust's FY20 DPU came in below expectations due to income retention.
Timely acquisition of MBC II provided income support.
VivoCity inevitably affected by Covid-19.

Mapletree Commercial Trust (SGX:N2IU)’s FY20 revenue and NPI increased by 8.8% and 8.7% y-o-y to S$482.5m and S$377m, respectively. However, FY20 DPU declined by 12.5% to 8 Scts, as it retained $43.7m of income. This brings its full-year and 4QFY20 payout ratio to 85% and ~41%, respectively, with the bulk of its retained income held by way of capital allowance. Hence, it is still eligible for tax transparency.
Our FY21-22F DPU for MCT is raised by 2-3% after updating the full-year numbers and increasing the rental rebate assumption from 3 months to 3.5 months.

In spite of rental rebates of S$8.8m granted to retail tenants affected by the pandemic, Mapletree Commercial Trust's 4QFY20 revenue and NPI increased by 12.8% and 12.6% y-o-y to S$127.3m and S$98.6m, respectively, mainly due to the contributions from MBC II, which was acquired on 1 Nov 2019.
Excluding the effect of the acquisition, NPI would have declined by 6.9% y-o-y to S$57.7m, due to lower revenue from VivoCity and PSAB, indicating that MBC II was a timely diversification.

VivoCity’s full-year revenue and NPI declined by 1.2% and 2.2% y-o-y, respectively, due to rental rebates granted to eligible retail tenants (revenue -17% y-o-y; NPI -20.5% y-o-y) in 4QFY20. The mall’s FY20 tenant sales declined by 3.4%, while shopper traffic dropped 6.8% y-o-y.
In 4QFY20, we estimate that tenant sales and shopper traffic declined by ~13% and 21%, respectively, due to the Covid-19 impact. VivoCity’s actual occupancy was 99.6%, while committed occupancy remained high at 99.7%.

As for its business/office segment, revenue excluding MBC II improved by 1.5% and 1.7% y-o-y in 4QFY20 and FY20, respectively. MLHF and MBC I continued to deliver higher income, while PSAB and Mapletree Anson saw some income weakness due to weaker occupancy. However, the committed occupancy for PSAB and Mapletree Anson improved to 92.7% and 100%, respectively. Hence, revenue from these two properties should see improvement going forward.

Management indicated that lower DPU payout in 4Q is more of a prudent measure rather than a need as it has S$321m of cash and undrawn committed facilities.
All term loans due in FY21 have been refinanced in advance, leaving a balance of S$160m of MTN due in the same year. As at 31 Mar 2020, Mapletree Commercial Trust's gearing was 33.3%, while interest coverage ratio was at ~4.3x.

Mapletree Commercial Trust will be waiving fixed rent for Apr 2020 for eligible retail tenants in view of the “circuit breaker” measures. This is on top of the S$29m of relief packages that have been announced. All in, Mapletree Commercial Trust has committed 3.5 months of rental rebates to eligible tenants, higher than most of its peers.

So far, we understand that a minimal number of tenants have applied for rental deferral. While the management indicated that those opting for rental deferrals would increase, it estimates that the percentage of tenants by revenue would be in the mid-single digits (mostly from VivoCity).
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.

On lease renewals, VivoCity only has 8.1% of rental income up for renewal in FY21, while office/business park has 10.7% of income up for renewal. The focus for VivoCity is to maintain occupancy. For offices, it is still business as usual.
See also report: FCT, MCT, ESR REIT - CGS-CIMB Research 2020-04-24: Bracing For The Impact Of COVID-19 In 2Q.

EING Kar Mei CFA CGS-CIMB Research | LOCK Mun Yee CGS-CIMB Research | https://www.cgs-cimb.com 2020-04-24

SGX Stock Analyst Report HOLD MAINTAIN HOLD 1.940 UP 1.88