1Q in Line; Organic Growth Dull - HOLD. Prefer FCT

• Mapletree Commercial Trust’s 1Q19 results were in line with our estimates. Our DPU forecasts and DDM-based SGD1.50 Target Price (WACC: 7.1%, LTG: 1.2%) are unchanged. 
• MCT’s improved earnings visibility due to new leases, expansions and AEI at VivoCity should support its DPUs and valuations. However, with committed occupancies already above 99%, and rental reversions moderating to low single digits, its organic growth outlook remains unexciting.
• Maintain HOLD. We prefer Frasers Centrepoint Trust (SGX:J69U, Rating: BUY, Target Price: SGD2.55) for its suburban footprint and stronger growth profile.

DPUs Flat, Retail Rental Reversion Slowed to +2.1%

Mapletree Commercial Trust’s revenue and NPI rose 0.7% y-o-y and 2.1% y-o-y with higher contributions from VivoCity, Mapletree Business City (MBC I), Bank of America Merrill Lynch HarbourFront (MLHF) and the PSA Building. Its 1Q19 DPU of SGD2.23cts was flat y-o-y and in line with our estimate. 

All properties except for MBC I saw stable or improving occupancies q-o-q; its portfolio’s committed occupancy rose q-o-q from 98.4% to 99.2%.

While shopper traffic at VivoCity increased by 0.4% y-o-y, its tenants’ sales declined by 4.1% y-o-y due to the downtime caused by the on-going AEI. Rental reversion for its retail segment was +2.1%, in line with the 1-5-2.3% registered in recent quarters, but a correction from the 6-year average of +23% since its IPO in 2011.

Source: Maybank Kim Eng Research - 27 Jul 2018