SINGAPORE (Jan 2): Maybank KimEng is starting coverage of Mapletree Commercial Trust (MCT), the best performing REIT in 2017, with a "sell" and $1.45 target price given DPU downside risk.
Maybank says MCT has delivered an average 23% six-year rental reversions at VivoCity, S’pore’s largest mall, and 4.9% DPU CAGR from FY12-17 following its Mapletree Business City 1 (MBC1) acquisition in 2016.
However, Maybank believes these are reflected in its valuations, now at 5.8% yield.
Looking ahead, Maybank believes the market will need to price in a slowdown in rental reversions across its portfolio and expects MCT’s share price to lag its retail peers.
"We find the shares overvalued and initiate with "sell" and DDM-based target price of $1.45," says analyst Chua Su Tye in a Monday report.
Chua sees downside risk to market expectations of rental reversion prospects at MCT’s VivoCity, as well as its business park and office assets on the city fringe.
VivoCity’s earlier strong performance with rental reversions averaging +23% since IPO was supported by low rentals which was 22% below comparable malls.
Meanwhile, Chua sees a moderation in its rental reversion outlook for its business parks given the narrowing gap to prime Grade A offices.
"We believe that the office recovery is underway, but uncertainties lie in new tenancies, and have imputed 6%, 3% and 11% reversions for its retail, business park, and office assets, respectively," says Chua.
Chua expects VivoCity to maintain its position as a destination mall, helped by improvement in shopper traffic given its size and location at Harbourfront’s interchange, and gateway to Sentosa Island.
However, the analyst sees some degree of tenant retention risk, with a relatively higher proportion of its leases (35-42%) at risk to e-commerce competition. We see a stronger proxy to Singapore’s tourism rebound at Orchard Road malls.
MCT has had the longest period of outperformance, which was achieved on the back of strong double-digit rental reversions at its key VivoCity retail asset. With growth tapering from structural concerns, we see downside risk to DPU estimates.
Units in MCT are trading flat at $1.62 or 5.5% FY18 DPU yield.
