• Mapletree Commercial Trust's 4Q/FY19 DPU of 2.31/9.14 Scts was in line at 25.5%/101% of our FY19 forecast.
• VivoCity continues to perform well, with higher occupancy at its office properties.
• Maintain ADD with a higher Target Price of S$2.03.

Mapletree Commercial Trust's 4QFY3/19 Results Highlights

• MAPLETREE COMMERCIAL TRUST (SGX:N2IU)’s 4QFY3/19 gross revenue and NPI grew 3.7%/3.9% y-o-y to S$112.9m/S$87.6m, thanks to a better performance from VivoCity, Merrill Lynch Harbourfront (MLHF), PSA Bldg (PSAB) and Mapletree Business City I (MBC I), partly offset by slightly weaker Mapletree Anson (MA).
• Committed portfolio occupancy is higher y-o-y at 98.5%. 4Q DPU of 2.31 Scts is up 1.8% y-o-y. For FY19, the trust achieved DPU of 9.14 Scts, +1.1% y-o-y.
• Mapletree Commercial Trust’s assets were revalued up by 5.3% to S$7.04bn as at end-FY19 due to better operating metrics and slight cap rate compression, translating to a BVPS of S$1.60.

VivoCity the Star Performer

• VivoCity achieved a 3%/3.5% y-o-y improvement in FY19 gross revenue and net property income on the back of 3.5% positive rental reversion and effects of step-up rents. Shopper traffic was up 0.5% y-o-y despite a 2% decline in tenant sales, temporarily disrupted by asset enhancement works at the library on L3, changeover of hypermarket and active tenant remixing.
• Momentum has picked up again and we understand that patronage at the library, post its Jan 2019 opening, was very encouraging. In addition, fitout works by Fairprice have commenced and the remaining 24k sqft of space has been fully committed by Uniqlo. Scheduled to be completed by 2QFY3/20, this changeover at the speciality space portion is expected to generate a 40% ROI. This should underpin MCT’s earnings outlook in FY20.
• In addition, Mapletree Commercial Trust has 6.6% and 10.8% of retail expiries in FY20 and FY21, which we expect to be renewed positively.

Robust Office Occupancy

• Higher office income in FY19 was driven by greater contributions from renewed leases and increased other revenue at PSAB and full occupancy at MLHF. The office/business park portfolio reported a 10.3% positive rental reversion for FY19 (+8.7% including rent review).
• Committed occupancy at Mapletree Commercial Trust’s office properties have risen q-o-q to 96.4%-100%. Near-term outlook for the office sector remains robust, driven by tightening vacancy and we anticipate the rental upcycle to continue.
• Mapletree Commercial Trust has 3.7% and 16.9% of office rental revenue to be re-contracted in FY20-21.

Maintain ADD

• We tweak down our FY20-21 DPU marginally post results and introduce FY22 estimates. We expect the trust to continue delivering DPU growth, underpinned by asset enhancement activities at VivoCity and positive rental reversion.
• In addition, gearing has improved to 33.1% with no debt refinancing needs in FY20. This puts the trust in a strong position to consider inorganic growth opportunities.
• Our DDM-based Target Price is raised to S$2.03 with a lower cost of equity assumption of 7.14% (vs. 7.44% previously) on a benign interest rate outlook.
• Potential re-rating catalysts include acquisitions and further asset enhancements, while downside risks are worse-than-expected retail and office rents.

Source: CGS-CIMB Research - 24 Apr 2019