• 3QFY21 business update shows that Mapletree Commercial Trust (SGX:N2IU) has maintained high committed occupancy of 99.5% at VivoCity. VivoCity has been enhanced with a promenade-facing F&B cluster on Level 1 and more Adidas flagship stores.
• VivoCity is affected by the absence of tourist spending, but MBC I and MBC II will benefit from demand from technology and pharmaceutical companies.
• Maintain BUY. Target price: S$2.35.

Mapletree Commercial Trust's 3QFY21 Business Update

• Mapletree Commercial Trust reported declines in gross revenue and NPI of 1.9% and 1.2% respectively in its 3QFY21 (Oct 2020 to Dec 2020) business update.

VivoCity: Affected by rental rebates.

• VivoCity’s gross revenue and net property income (NPI) declined 29.1% and 30.1% y-o-y respectively in 9MFY21 due to rental rebates granted to eligible retail tenants affected by the COVID-19 pandemic. VivoCity recorded S$232.2m of tenant sales in 3QFY21, which is 85.9% of levels in comparable period last year (2QFY21: 78%). VivoCity has maintained high committed occupancy at 99.5%. It has experienced progressive recovery in shopper traffic and tenant sales since Phase Two of reopening starting 19 Jun 20, further boosted by year-end festivities in 3QFY21.
• VivoCity has revitalised the promenade-facing F&B cluster on Level 1 with household names, such as Shake Shack and Hoshino Coffee, which has been completed and well received by shoppers. Adidas expanded its footprint in VivoCity to introduce Adidas Originals’ largest 6,000sf flagship store in Southeast Asia at basement 1. It carries an extensive selection including exclusive and limited edition pieces. Adidas plans to open a second flagship store on level 1, scheduled to open in 1QFY22.

Office/business park: Growth driven by MBC II.

• Mapletree Commercial Trust's gross revenue and NPI from the office/business park segment grew 21.8% and 22.6% respectively in 9MFY21.
• Mapletree Business City (MBC) I and MBC II have maintained high committed occupancy of 98.2% and 100% respectively. MBC II, which was acquired on 1 Nov 19, contributed S$63.8m or 18.3% of total gross revenue in 9MFY21.
• Occupancy for Mapletree Anson improved 3ppt y-o-y to 100%.
• Bank of America Merrill Lynch HarbourFront (MLHF) also maintained full occupancy.

Maintained robust balance sheet.

• Aggregate leverage is low at 34.0%. The weighted average all-in cost of debt is a healthy 2.51%.
• Mapletree Commercial Trust has cash and undrawn committed facilities of more than S$500m, which is more than sufficient to refinance all its borrowings due in FY22. Its debt maturity is well spread out with no more than 24% of debt due in any financial year.

Office/business Park More Resilient

• Higher vacancy has exerted downward pressure on office rents. However, demand for office space could be bolstered by China technology companies and non-bank financial services companies. Displaced tenants from planned redevelopment projects will also contribute to leasing activities.
• Management is hopeful for an upturn in office rents in 2H21 due to the limited supply of Grade A office space in 2021. Similarly, the technology sector is expected to be the main driver of demand for business park space in the city fringe sub-market.

Prime Beneficiary of Sentosa-Brani Master Plan

• Sentosa Island and Pulau Brani will be redeveloped into five distinct zones, namely Vibrant Cluster, Island Heart, Waterfront, Ridgeline and Beachfront. Each zone will deliver its unique experience, such as nature and heritage trails, adventure attractions, eco-resorts, water shows and beach events. The Vibrant Cluster zone, which spans both islands, will have large-scale attractions. The Waterfront zone on Pulau Brani will house a “futuristic” discovery park.
• Mapletree Commercial Trust will benefit immensely from development of the Greater Southern Waterfront (GSW) and rejuvenation of Sentosa Island and Pulau Brani. It has five properties located in the HarbourFront area, which accounted for 91.4% of its portfolio valuation in aggregate.

Valuation & Recommendation

• We maintain our existing earnings forecast for Mapletree Commercial Trust.
• Maintain BUY. Our target price of S$2.35 is based on DDM (required rate of return: 5.75%, terminal growth: 1.8%).

Source: UOB Kay Hian Research - 28 Jan 2021