Mapletree Commercial Trust - Upside from VivoCity yet to kick in (CIMB)

OUTPERFORM Maintained

S$0.89 Target: S$1.01

Mkt.Cap: S$1,647m/US$1,368m

• In line; maintain Outperform. 1Q12 DPU meets expectations at 19% of our fullyear estimate and consensus. The quarter only consisted of 65 days, after listing. Annualised, DPU would have formed 26% of our FY12 forecast. There was strong rental growth at VivoCity even though the bulk of potential lease-renewal upside (43% of leases) has yet to kick in. This remains a key catalyst for MCT in FY12, we believe, with the completion of AEI in PSAB and the possible acquisition of MBC forming the next triggers. We refine our model to assume slightly stronger growth for VivoCity (raising FY12-13 earnings by 3-4%) but lower our DDM-based target price from S$1.08 to S$1.01 on applying a lower terminal growth rate of 2% (2.5% previously), in line with our assumptions for its listed peers. MCT trades at a 5.9% CY12 yield.

• Potential upside from VivoCity yet to kick in. 1Q12 revenue inched up 3% yoy to S$33m as VivoCity’s base and turnover rents grew 4.5% and 6.7% yoy respectively. Although 43% of its total leases are due for renewal this year, we understand that the new base rates are likely to kick in only at end 2011/early 2012. The asset remains substantially under-rented, in our view, at S$9.79psf as at Nov 10 vs. an average of S$11-14psf for comparable malls in Singapore. We understand that GTO growth at VivoCity could have been 10-15% yoy, lending support to revenue growth for MCT (GTO rents form 20% of VivoCity’s gross revenue). We anticipate substantial rental reversions in FY12 as the mall enters its first renewal cycle.

• PSAB enhancement and MLHF step-up to add to NPI; acquisition trigger from MBC. Strong rental growth in the quarter was partially offset by the decanting of retail units for the development of the new Alexandra Retail Centre (ARC), due to be completed by end-2011. Retail space is estimated at 89.6k sf of NLA while office space consists of 15.1k sf of NLA. By Dec 11, the rental step-up provision for MLHF’s master lease (10-12%) will also be triggered to fuel further organic growth. In the mid-term, acquisition upside could continue to come from its sponsor’s assets under ROFR, namely Mapletree Business City.