Mapletree Commercial Trust in Focus

Buy. Mapletree Commercial Trust’s (MCT) star asset – VivoCity (c.65% of NPI) to remain a key driver for the trust in the immediate term.

ALP REIT INVESTMENT CLUB

Mapletree Commercial Trust (N2IU)

(28June2016) close price: S$1.435

12M-Target price: S$1.60

Distribution Yield: 5.674%

1.) Type of Reit: Office & Retail Reit

2.) Number of property in the portfolio: MCT’s portfolio comprises four properties. The portfolio has a total Net Lettable Area of 2.1 million square feet and is valued at S$4,199 million1 in aggregate as at 31 March 2015.

3.) Countries that the business operates in: Singapore Only

4.) Top 5 properties that generates the highest revenue (Decreasing order):

VivoCity(65%), PSA Building (18%),Mapletree Anson(11%), Bank of America Merrill Lynch HarbourFront (6%)

5.) Weighted average lease expiry (WALE) profile:

maple lease

 

 6.) Debt maturity profile:

maple debt

 

 7.) Challenges: Vacancy levels are expected to remain low in 2015 due to tight supply conditions. However, it will ease in H2 2016 as the next wave of quality office space enters the market. Grade A rents are expected to remain unchanged at S$11.40 for the rest of 2015 before declining by 10% to S$10.30 psf in 2016. Similarly, Grade B rents are forecasted to remain stable in 2015, but are expected to come under significant pressure in 2016 due to cannibalisation by a new wave of Grade A offices.

Sustained drop in CBD office rents could impact office earnings in the medium term. Although the REIT’s office portfolio is largely located outside the CBD and therefore less exposed to the large office supply completing from 2016 onwards, any prolonged decline in CBD rents would have a negative spillover effect to the city fringe, as narrowing rental differentials could entice tenants to relocate to the CBD instead.

8.)Strengths: We expect Mapletree Commercial Trust’s (MCT) star asset – VivoCity (c.65% of NPI) to remain a key driver for the trust in the immediate term. Through the years, VivoCity has proven to be one of the best performing malls in Singapore by virtue of its popularity with families and close proximity to Sentosa. In addition, the low level of office lease expiries until FY17/18 minimizes potential volatility in rents and occupancy when a large supply of office space enters the CBD in the next 1-2 years.

9.) Significant events: VivoCity set yet another new sales record of about S$909 million despite some trading downtime due to the AEI works. The mall also garnered several awards during the year, including The Best Family-Friendly Mall and one of the Top 3 Shopping Centres (City) at the AsiaOne People’s Choice 2014, and Winner for Outstanding Efforts in Advertising and Promotions at the Singapore Retailer’s Association Shopping Centre Awards 2014.

10.) TABLE:

mqple revenue

11.) Recommendation: Buy. Mapletree Commercial Trust’s (MCT) star asset – VivoCity (c.65% of NPI) to remain a key driver for the trust in the immediate term. Retail reversions continue to outperform other retail S-REITs. Retail rental reversions of over 12% demonstrate the strong retailer demand at VivoCity, supported by robust and consistent foot traffic.

COMPILED BY: Edwin Fung (Find Edwin on Facebook)

DISCLAMER: Readers should not rely solely on information published and should seek independent financial advice prior to making any investment decision. The publisher accepts no liability for any loss whatsoever arising from any use of the information published herein.

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