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Author: simonsg   |   Latest post: Fri, 13 Dec 2019, 4:31 PM

 

Mapletree Commercial Trust 1QFY20 - Vivocity Delivers the Goods

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  • Mapletree Commercial Trust’s 1QFY20 results are in line with our expectations. VivoCity continues to outperform with revenue growth of 5.2% y-o-y, high occupancy of 99.1% and positive rental reversion of 7.3%.
  • Mapletree Commercial Trust is a prime beneficiary of rejuvenation of Sentosa and Pulau Brani. We estimate the acquisition of MBC 2 would raise pro forma 2020 DPU by 2.8% to 9.65 S cents.
  • Maintain BUY and target price of S$2.22.

1qfy20 Results

  • MAPLETREE COMMERCIAL TRUST (SGX:N2IU) reported a DPU of 2.31 S cents for 1QFY20, up 3.6% y-o-y. The results were in line with our forecast of 2.32 S cents.

VivoCity continues to outperform.

  • Revenue contribution from VivoCity grew 5.2% y-o-y to S$53.3m, benefitting from higher rental income from new and renewed leases, positive impact of asset enhancement initiatives completed in FY19 and step-up rents in existing leases. Actual occupancy improved 4.9ppt y-o-y to 99.1% (committed occupancy: unchanged at 99.8%), a remarkable feat given the huge size of VivoCity.

Changeover of anchor tenant (Giant Hypermart to NTUC FairPrice).

  • NTUC FairPrice, Singapore’s leading Cheers Uniqlo’s expansion from 10,700sf to 19,000sf. Most of these new tenants have started operations since May 19. Management expects the full changeover to deliver a ROI of 40%.

Higher contributions from office/business park assets.

  • Revenue contribution from MBC 1 grew 3.8% y-o-y to S$32.8m due to the positive impact from new leases and step-up rents in existing leases. Bank of America Merrill Lynch HarbourFront (MLHF) contributed to portfolio stability by continuing to maintain full occupancy. Committed occupancy for PSA Building remained healthy at 93.8%.

 

VivoCity continues to sustain positive rental reversion.

  • Mapletree Commercial Trust achieved rental reversion of 5.3% on a portfolio basis, driven mainly by VivoCity (+7.3%). Retention rate for VivoCity was also healthy at 87.5%.

Gearing remains low at 33.1% (flat qoq).

  • 80.5% (vs 85.0% in 4QFY19) of Mapletree Commercial Trust’s total debt has been hedged on fixed interest rates. Weighted average term to maturity of debt is 3.4 years, while weighted average cost of debt was stable at 3.00%.
  • Mapletree Commercial Trust does not have any term loan due for refinancing in FY20. It has debt headroom of S$1.5b based on regulated leverage limit of 45%.

STOCK IMPACT

Prime beneficiary of government’s tourism initiatives.

  • The government will draw up comprehensive plans to develop new tourism attractions at Sentosa, Pulau Brani and the Greater Southern Waterfront. Mapletree Commercial Trust is a prime beneficiary of rejuvenation of Sentosa and Pulau Brani as properties located at the HabourFront area (VivoCity, MLHF, MBC 1 and PSA Building) accounts for 90% of its portfolio valuation.

Potential acquisition of MBC 2 is DPU accretive.

  • We estimate the acquisition of Mapletree Business City 2 (MBC 2) would raise pro forma 2020 DPU by 2.8% to 9.65 S cents based on these assumptions:
    • MBC 2 is valued at S$1,345m or S$1,152psf based on cap rate of 5.0%.
    • The debt and equity mix is 50:50. Mapletree Commercial Trust takes up a loan of S$672.5m at an interest rate of 3.0%. Mapletree Commercial Trust raises S$672.5m by placing out 350m new units at an issue price of S$1.92. We see gearing rising marginally from 33% to 35%.
    • Passing rent is S$6.00psf.

EARNINGS REVISION/RISK

  • We maintain our existing earnings forecasts.

VALUATION/RECOMMENDATION

  • Maintain BUY. Our target price of S$2.22 is based on DDM (required rate of return: 6.25%, terminal growth: 2.0%).

SHARE PRICE CATALYST

  • Development of new tourism attractions at Sentosa, Pulau Brani and the Greater Southern Gateway.
  • Potential acquisition of MBC 2 from sponsor Mapletree Investments.

Source: UOB Kay Hian Research - 26 Jul 2019

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