Mapletree Commercial Trust - UOB Kay Hian 2020-07-27: 1QFY21 Offices & Business Parks Saved The Day

MAPLETREE COMMERCIAL TRUST (SGX:N2IU)

Mapletree Commercial Trust - 1QFY21 Offices & Business Parks Saved The Day

Mapletree Commercial Trust’s 1QFY21 business update was in line with our expectations. Gross revenue from VivoCity dropped 56.7% y-o-y to S$23.1m, mitigated by newly-acquired MBC II, which contributed S$21.1m.
Mapletree Commercial Trust’s office/business parks portfolio provides resiliency and income stability, while we await recovery at VivoCity to gather momentum.

Mapletree Commercial Trust (SGX:N2IU) provided business update for 1QFY21, which is in line with expectations.

Gross revenue and NPI declined 10.5% and 10.7% y-o-y respectively due to rental rebate disbursed to eligible retail tenants, mitigated by contribution from MBC II, which was acquired in Nov 19. Portfolio occupancy was unchanged at 97.1%.

MBC I and MBC II provided income stability with respective contributions of S$31.8m and S$21.1m to gross revenue in 1QFY21.
Contribution from Mapletree Anson increased 4.9% y-o-y due to higher occupancy and positive impact from step-up rents of existing leases.
MBC II, Mapletree Anson and MLHF recorded full occupancy of 100% as of Jun 20.

Gross revenue from VivoCity dropped 56.7% y-o-y in 1QFY21 due to rental rebates disbursed to eligible retail tenants. Shopper traffic and tenant sales at VivoCity dropped 78.5% and 63.4% y-o-y respectively, affected by the 8-week Circuit Breaker period and safe distancing measures.
Many businesses remained closed during Phase One of Re-opening from 2-18 Jun 20. Nevertheless, committed occupancy for VivoCity was a healthy at 98.4% (eased marginally by 1.1ppt q-o-q).

Management will exercise prudence in managing its balance sheet until there is full clarity on the COVID-19 situation. Mapletree Commercial Trust has committed credit facilities in place to refinance borrowings due in FY21 and FY22. Aggregate leverage is low at 33.7%. Debt maturity is well spread out with no more than 15% of debt due in any financial year. Weighted average cost of debt has dropped to 2.61%, compared to 3.00% a year ago.

VivoCity has experienced encouraging recovery in shopper traffic and tenant sales since Phase Two of re-opening started on 19 Jun 20. Majority of tenants have resumed operations but it will take some time for shopper traffic and tenant sales to get back to pre-COVID-19 levels.

Mapletree Commercial Trust has implemented four rounds of support packages to provide relief to tenants. In aggregate, eligible tenants would have received close to four months of fixed rents from March to July. The latest fourth round of support package of S$6m raises rental rebates for eligible tenants from 50% to 100% during Phase One of Safe Re-opening (1-18 Jun 20).

Sentosa Island and Pulau Brani will be redeveloped into five distinct zones, namely Vibrant Cluster, Island Heart, Waterfront, Ridgeline and Beachfront. Each zone will deliver its unique experience, 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.
Mapletree Commercial Trust will benefit immensely from the development of the Greater Southern Waterfront (GSW) and rejuvenation of Sentosa Island and Pulau Brani. It has five properties located in the Habourfront area, which accounted for 91.5% of its portfolio valuation in aggregate.

We have reduced our Mapletree Commercial Trust's FY21 DPU forecast by 5.7% after factoring in the fourth round of support package. We keep our FY22 DPU relatively unchanged.
Maintain BUY. Our target price of S$2.35 is based on DDM (required rate of return: 5.75%, terminal growth: 1.8%).
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.
Share price catalysts:
- Gradual but steady recovery in shopper traffic and tenant sales, accompanied by progressive easing of social distancing measures.
- The return of tourists in 2H21. Development of new tourism attractions at Sentosa, Pulau Brani and the Greater Southern Gateway.

Jonathan KOH CFA UOB Kay Hian Research | Peihao LOKE UOB Kay Hian | https://research.uobkayhian.com/ 2020-07-27

SGX Stock Analyst Report BUY MAINTAIN BUY 2.35 DOWN 2.380