Mapletree Commercial Trust expects slowdown as VivoCity matures

Half of MCT's revenues could still depend on it by 2018.

Mapletree Commercial Trust (MCT) should expect a growth slowdown ahead as VivoCity is nearing its mature stage, DBS Equity Research said.

Meanwhile, MCT's acquisition of Mapletree Business City - Phase 1 (MBC I), still a segment in high demand, plus management’s continuous efforts to revamp VivoCity’s offerings, should mitigate the slowdown at the portfolio level.

VivoCity and MBC I could account for about 50% and 30% of MCT's revenues in 2018, respectively.

Despite a looming slowdown for MCT, there are benefits that can be found from the two properties.

"We think VivoCity can continue to prove its resilience to retail headwinds as one of the most popular retail destinations in Singapore – a view shared among consensus," said DBS analyst Derek Tan.

Moreover, MBC I is considered "a rare gem in the Singapore property market," because of its asset class that diversifies MCT's portfolio and the scarcity of similar Grade A Business Parks in Singapore.

DBS said investors should closely monitor occupancy levels and rental reversion rates from the two.

Here's more from DBS Equity Research:

We have a positive outlook on both assets. MCT achieved a credible 13.5% increase in retail rental reversions in 2017 on the back of a 95.3% retention rate and renewal of anchor tenants, despite the tough operating climate, and most landlords experiencing flat to low single-digit rental reversions.

We believe growth rate can be maintained at 2-3%. As for MBC I, around 20% of its leases will be due for renewal in the next two years and we believe rental upside could be achieved due to 1) the lack of alternative solutions to Grade A Business Parks in the market, 2) tenants likely to renew their leases to recoup their fitting-out investments as MBC I only started operations in 2010, and 3) the landlord has proven itself to be a commendable operator at MBC I as observed by major tenants, e.g. Google, which has relocated to Phase 2.