Wednesday, April 26, 2017

Mapletree Commercial Trust - Strong performer

4Q/FY17 results came in slightly ahead of our expectations 
MCT reported 4QFY17 DPU of 2.26 Scts, coming in slightly ahead of our projections, representing 12% yoy growth. The better results were supported by a 47% yoy jump in revenue, thanks to the acquisition of MBC1. Additionally, all the properties across the portfolio also reported an improvement in contributions. FY17 DPU of 8.62 Scts exceeded our estimates by 3.4%. The better asset performance led to a 2.2% valuation uplift, with no change in cap rates, translating to a book NAV of S$1.38. 
Vivocity continues to perform well 
FY17 gross revenue and NPI from Vivocity rose 5%/3.4% yoy while occupancy remained high at 99%. Shopper traffic grew by a stronger 4.8% yoy to 55.8m while tenant sales crept up 1.3% yoy to S$952m. Retail rents saw a 13.5% upward revision on renewal. Going into FY18-19, MCT has 8.2% and 18% of retail leases to recontract. We expect rent renewals to be more muted, but positive, going forward as the retail climate remains challenging.   
Office/business parks component offers stability 
The office/business parks portfolio enjoyed an 8.5% rental uplift on renewals while occupancy at MBC1 and PSA Building held steady at 99% and 98.3%, respectively. Committed occupancy at MLHF rose to 91.6% as part of the vacated space was re-leased. The trust has 4.5% and 7.8% of office leases to be renewed in FY18-19. A lack of new business parks supply should support business park rents. 
Strong balance sheet with no near-term refinancing needs 
Its balance sheet remains healthy with gearing dipping slightly to 36.3% with a higher portfolio value. 81.2% of its debt cost has been hedged and there is no refinancing needed until FY19.   
Upgrade to Add 
We tweak our FY18-19 DPU up by 0.5-1.6% to adjust for the better-than-expected performance and introduce our FY20 estimates. We raise our DDM-based target price to S$1.70 as we roll forward our projections as well as lower our Singapore discount rate. Upgrade to Add from Hold. We like MCT’s portfolio which has a good blend of resilience (through the more stable business park rents) as well as growth coming from Vivocity. MCT offers total return of c.14%. Risks include slower-than-projected rental uplift.   

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