Revising DPUs, Upgrade to BUY

• Despite NPI being up 12.6% y-o-y, Mapletree Commercial Trust (SGX:N2IU)’s 4Q20 DPU fell 60.6% y-o-y. This is because management exercised caution and retained SGD43.7m in capital distributions as Covid-19 has created income uncertainties.
• We factored in its rental rebate packages, which aim to support tenants from Mar till Jul 2020. Our DPUs are lowered by 6-19%, and our DDM-based Target Price falls to SGD2.15 (COE: 6.1%, 2.0%).
• Mapletree Commercial Trust's balance sheet remains strong with SGD1.5-3.0b in debt headroom at 45-50% leverage limit. Its shares have pulled back and now offer 5.5% div yield, at close to its historical mean, while its DPU growth visibility has improved following its MBC II acquisition.
• With relatively lower downside risk to our revised estimates given its best-in-class Singapore assets and 26% total return, we upgrade from to BUY from HOLD.

Better NPI, Lift From MBC II

• Mapletree Commercial Trust's 4Q20 revenue and NPI jumped 12.8% y-o-y and 12.6% y-o-y, helped by the addition of MBC II (since 1 Nov 2019), and higher contributions from its MBC I and MLHF properties. However, portfolio occupancy dipped q-o-q from 98.3% to 97.1% due to transitory vacancies at MBC I (from 99.7% to 96.4%). But committed occupancy remained high at 98.7%.
• Rental reversion was at +5.0%, and stayed at +6.7% for its retail assets and at +0.7% for its office/ business parks, similar to the previous quarter.

VivoCity Tenancies Helped by Rebates Till Jul

• Revenue and NPI from VivoCity declined 16.9% y-o-y and 20.5% y-o-y in 4Q20, while its full-year shopper traffic and tenant sales fell 6.8% y-o-y and 3.4% y-o-y due to safe distancing measures.
• About SGD29m in rental rebate packages, which included a pass-through of the government’s property tax rebates, contributed to the mall’s weaker performance. These, and a waiver of fixed rent for Apr 2020, implies that its eligible and affected retail tenants would have gained about 3.5 months in rental rebates, while security guarantees remain intact.

MBC II Has Improved DPU Growth Visibility

• Mapletree Commercial Trust's cap rates were unchanged since Aug 2020, but retail cap rates rose 25bp y-o-y while those for office and business park tightened by 10bps and 15bps respectively. Its AUM profile has improved with the MBC II deal, with a lower retail contribution, which is down y-o-y from 45.5% to 36.6%.

Source: Maybank Kim Eng Research - 24 Apr 2020