SINGAPORE (Jan 26): CIMB believes Mapletree Commercial Trust’s earnings are likely to remain stable, underpinned by better performance at VivoCity.

In the longer term, the lack of new business parks supply should be supportive of rents. Downside risks include continued drag in office and retail rents.

"We leave our FY18-20 DPU estimates unchanged post results and maintain our DDM-based target price at $1.75," says Lock Mun Yee in a Thursday report.

MCT’s 3Q18 gross revenue rose 0.8% to $109.7 million and NPI rose 1.9% y-o-y to $85.8 million on higher contribution from VivoCity and Mapletree Business Centre I, offset by lower earnings from PSA Building and Mapletree Anson.

Distribution income of $66.5 million, up 1.3% y-o-y, translates into DPU of 2.3 cents. For the 9M, DPU of 6.77 cents was in line with expectations, accounting for 77.5% of CIMB's FY18 forecast.

On a portfolio basis, retail renewals rose 2.3% for 9M18, with a retention rate of 77%. Office/business park renewals experienced 9.5% negative reversion. Inclusive of rent from the replacement tenant for a pre-terminated lease, office portfolio rental reversion was +0.7%.

Portfolio committed occupancy stood at 98.7% at end 3Q18. The trust has a marginal 0.8% and 0.4% of retail and office/business sparks space expiring in 4Q18, respectively and a further 16.7%/5.9% in FY19.

VivoCity’s 3Q gross revenue was 2.2% higher y-o-y due to the effect of stepped-up rents in existing leases as well as additional contributions from the completed AEIs at B2, L1 and L3.

Although shopper traffic fell 3.4% y-o-y in 3Q, tenant sales rose 1.3% y-o-y over the same period, indicating the resilience of the property.

"Hence, we expect upcoming rental renewals to remain positive, albeit modest," says Lock.

Gearing dipped marginally q-o-q to 36.3% at end 3Q18. The trust has $264 million of loans-- or 11% of total debt -- maturing in FY19. All-in debt cost increased slightly to 2.73% and 78% of its loans were on fixed rates.

MCT plans to add a 3,000 sqm public library on L3 of VivoCity, which will free up some bonus GFA that can be used to add over 24,000 sf of premium retail space in B1.

The exercise can be funded with the trust’s debt headroom, adds Lock.

As at 12.21pm, shares in MCT are trading at $1.68.