Mapletree Commercial Trust's 1HFY21 in Line, Maintain BUY

• Mapletree Commercial Trust (SGX:N2IU)’s 1HFY21 (Apr 2020 to Sep 2020) DPU was down 9.9% y-o-y, and in line (with consensus, MKE) as it returned a-third (SGD15.0m) of the capital retained in 4Q20.
• VivoCity has entered into a negative reversion cycle amid slow demand, but its asset management know-how should help cushion occupancies and NPI. Contributions from its office and business park assets have risen and should continue to support DPU visibility.
• We maintain our forecast and DDM-based Target Price (COE: 6.0%, 2.0%).
• Mapletree Commercial Trust's balance sheet remains strong with an estimated SGD1.8-5-3.0b in debt headroom. Valuations are undemanding at 4.9% FY22 yield.
• BUY.

Lower Occupancies, Lift From MBC II

• Mapletree Commercial Trust's revenue fell 5.6% y-o-y but rose 18.0% q-o-q in 2Q21 while NPI dipped 5.5% y-o-y and climbed 17.3% q-o-q as rental rebates to its affected tenants eased off from 1Q21. Excluding the contribution from MBC II, acquired in Nov 2019, revenue and NPI would have declined by 13.1% y-o-y and 13.7% y-o-y.
• Mapletree Commercial Trust's portfolio occupancy dipped from 97.1% to 95.3%, with the expiry of PSA Corp’s short-term lease (at PSA Building) while committed occupancy as of end-Sep 2020 remaining high at 97.7% with MBC II, Mapletree Anson and MLHF all fully occupied. Displacement tenants from upcoming CBD redevelopments should bolster occupancies at MBC.

VivoCity Recovering, Negative Reversions to Persist

• Revenue and NPI at VivoCity fell 24.9% y-o-y and 27.1% y-o-y, but jumped 80.6% q-o-q and 89.0% q-o-q. Rental reversion for its retail assets (including ARQ) was -8.9% for 1H21, from +6.7% for FY20, reflecting softer market rents in line with weaker demand in FY21-22, according to management. Tenant sales are back to 78.0% of pre-Covid levels, from 36.6% in 1Q21, and ahead of a 50.0% improvement in shopper traffic.
• A redesign of Best Denki’s footprint at level 2 to add Love, Bonito (at 4,300 sf) has achieved > 30% ROI, while the rejuvenation of its promenade-facing F&B cluster to accommodate four new tenancies by 3Q21 aims for similar returns.

Cap Rates Stable, Balance Sheet Strong

• Mapletree Commercial Trust's balance sheet remains strong, with leverage low at 33.8%. A half-year revaluation exercise saw its AUM dip 2.3% h-o-h to SGD8.7b, on higher vacancies and declining rents across its assets. Cap rates however were stable at 3.50-4.85% across its office, business park and retail portfolio.

Source: Maybank Kim Eng Research - 23 Oct 2020