• 4QFY19 DPU +1.8% YoY
• Positive rental reversion
• Strong revaluation gains

4QFY19 Results Within Our Expectations

Mapletree Commercial Trust (MCT) reported a steady set of 4QFY19 results which came in within our expectations. Gross revenue and NPI rose 3.7% and 3.9% YoY to S$112.9m and S$87.6m, respectively. Growth was driven largely by higher contribution from VivoCity, PSA Building and Bank of America Merrill Lynch HarbourFront (MLHF).

DPU grew by a smaller magnitude of 1.8% YoY to 2.31 S cents as a result of higher finance expenses, management fees and a larger unit base. For FY19, MCT’s NPI improved 2.6% to S$347.6m, while DPU of 9.14 S cents represented growth of 1.1% and this accounted for 100.9% of our FY19 forecast.

Robust Rental Reversions Delivered

Operationally, MCT achieved firm rental reversions of +3.5% for its retail portfolio in FY19, and +10.3% for its Office/Business Park segment (+8.7% if we include rent review of a sizeable space at MBC I). Overall portfolio rental reversion was positive at 5.5% (5.4% including rent review). Although this was a slight moderation as compared to 9MFY19 (+5.9%; +5.8% including rent review), it was a significant improvement from the -2.1% rental reversion seen in FY18.

Actual portfolio occupancy was stable QoQ at 98.1%, with the committed occupancy slightly higher at 98.5%. For VivoCity, shopper traffic rose marginally by 0.5% to 55.2m for FY19, but tenants’ sales declined 2.0% to S$939.1m. This was likely caused by the transitory impact from the mall’s AEI, coupled with the changeover in hypermarket operator to NTUC FairPrice (fit-out works started since 1 Apr and is expected to complete by 2QFY20).

Revaluation Gains Boosted NAV and Reduced Gearing Ratio

MCT registered a fair value gain of S$336.6m in FY19, as there was cap rate compression across all its properties by 10-25 bps. As a result of this, MCT’s NAV per unit grew 7.4% to S$1.60 (P/B ratio of 1.15x as at 23 Apr close). Its gearing ratio also came down from 34.5% (end-FY18) to 33.1% even though total borrowings increased slightly by 0.9%. This leaves MCT with ample debt headroom of S$816.9m before it reaches a gearing ratio of 40%, based on our estimates.

After rolling forward our valuations and factoring in a lower risk-free rate assumption of 2.3% (previously 2.7%), our fair value estimate increases from S$1.79 to S$1.85. Maintain HOLD.

Source: OCBC Research - 24 Apr 2019