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.