3Q20 Ahead of MKE Estimate

• MAPLETREE COMMERCIAL TRUST (SGX:N2IU)’s 3Q20 DPU was ahead of our estimate by 2% but in line with the street. We raised DPU forecasts by 2% due to the better-than-expected accretion from the MBC II acquisition (at +5.6%), financed by its SGD918.5m equity fund raising.
• Our DDM-based Target Price rises slightly (COE: 6.1%, 2.0%) to SGD2.45. But maintain HOLD as it’s fairly valued to slightly-stretched following the rally (up 45% in 12 months) due to the completion of its widely-anticipated MBC II acquisition, and now offers 4% dividend yield.
• We prefer industrial REITs Ascendas REIT (SGX:A17U) (BUY, Target Price SGD3.35) and Mapletree Industrial Trust (SGX:ME8U) (BUY, Target Price SGD2.95), and hospitality names CDL Hospitality Trusts (SGX:J85) (BUY, Target Price SGD1.80) and Far East Hospitality Trust (SGX:Q5T) (BUY, Target Price SGD0.80) for their higher yields and stronger DPU growth profiles.

Better Portfolio Performance, Lift From MBC II

• Mapletree Commercial Trust's 3Q20 revenue and NPI jumped 16.7% y-o-y and 17.6% y-o-y with the addition of MBC II (from 1 Nov 2019) and higher contribution across all properties, except Mapletree Anson (revenue and NPI down 1.7% y-o-y and 1.0% y-o-y).
• Excluding MBC II, Mapletree Commercial Trust’s existing assets delivered 3.5% y-o-y and 3.9% y-o-y growth in revenue and NPI. Its portfolio occupancy improved from 96.1% to 98.3%, helped by MBC I (up from 98.9% to 99.7%) and backfilling at Mapletree Anson (from 75.1% to 97.0%).
• Committed occupancies remain high at 90.6%-100.0% as of end-Dec 2019. Rental reversion was at +6.7% for its retail assets (VivoCity), from +6.8% in 2Q20, and at +0.7% for its office/ business parks.

Steady Performance at Vivocity

• VivoCity’s revenue and NPI increased 2.3% y-o-y and 2.7% y-o-y, even as shopper traffic and tenant sales fell 2.2% y-o-y and 0.5% y-o-y. We see stronger sales growth momentum in the coming quarters as contributions from grocer NTUC Fairprice and new F&B tenancies gain traction. We expect mid-single digit reversions for the mall for FY20-21E.

Low Deal Visibility

• Following its MBC II deal, its low 33.4% leverage and SGD1.9b in debt headroom should support further opportunities from its 1.8m sf NLA sponsor pipeline. But acquisitions are unlikely in the short term, in our view.

Source: Maybank Kim Eng Research - 23 Jan 2020