Analysts are mixed on Mapletree Commercial Trust (MCT) with CGS-CIMB Research and OCBC Investment Research (OIR) maintaining “hold” calls on the REIT and DBS Group Research as well as Maybank Kim Eng keeping "buy" on the REIT.
CGS-CIMB Research has given a target price estimate of $2.32 from $2.26 previously, while OCBC has increased its fair value estimate to $2.20 from $2.18. DBS, on the other hand, has maintained its target price estimate of $2.25. Maybank Kim Eng has upped its target price on the REIT to $2.35 from $2.30 previously.
MCT, on April 27, reported distribution per unit (DPU) of 9.49 cents for the FY2020/2021 ended March, 18.6% higher than DPU of 8.00 cents the year before.
The REIT’s full-year revenue and net property income (NPI) of $479 million and $377 million, which stood 0.8% and 0.2% lower y-o-y respectively, were relatively flat thanks to the full-year contribution from MBC II which was acquired on Nov 1, 2019.
Excluding the acquisition, MCT’s revenue and NPI would’ve declined some 12% y-o-y mainly due to the rental rebates given to tenants, weaker occupancy rates and rental reversions.
To CGS-CIMB analysts Eing Kar Mei and Lock Mun Yee, MCT’s FY2020/2021 DPU exceeded their expectations at 107% of their FY2020/2021 estimates with the release of the $28 million retained income. Without the income, the REIT’s full-year DPU would’ve stood in line with expectations at 98% of their estimates.
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MCT, in its FY2020/2021 results, reported “encouraging tenant sales recovery” in VivoCity. Retail rental reversion fell 9.6% in FY2020/2021, which came in largely within Eing and Lock’s forecast of an 8% decline.
“FY2020/2021 tenant sales while declined 23.3% y-o-y on a full-year basis, 4QFY2020/2021 tenant sales achieved 92% of the levels in 4QFY2019 (pre-Covid-19 level) which was encouraging,” they write.
The REIT also reported overall stable performance from its office and business park segment.
“Office/business park portfolio’s committed occupancy remained high at 95% to 100% but is expected to decline slightly due to a lease termination at mTower ahead of commencement. No impact for now as the pre-term compensation provides >16 months of lead time for backfilling,” write the analysts.
On this, Eing and Lock have reduced their DPU estimates for FY2022 to 2023 by 0.6% to 4.8% after “factoring in the release of remaining retained income from the 4QFY2020/2021”. They have also reduced their rental reversion forecast for VivoCity.
“Our target price rises as we roll over our valuation to FY2022. Reiterate ‘hold’ as we believe the market has priced in its resilient portfolio,” add the CGS-CIMB analysts.
To the team at OCBC, MCT offers investors a unique exposure to the retail, office and business park sub-sectors in Singapore, with its portfolio of best-in-class assets – including VivoCity and MBC I – within the space.
“Although there are macro and industry headwinds from the Covid-19 pandemic, we see signs of recovery and believe MCT’s strong parentage and healthy balance sheet will allow it to tide over near- term uncertainties, while its strong management team and portfolio are well-positioned over the longer-term,” writes the OCBC team.
The REIT’s FY2020/2021 DPU has also exceeded OCBC’s expectations due to the retained cash distributed. The REIT still has a balance of $15.7 million of retained cash that the team expects to be distributed in the FY2022.
Unlike the analysts at CGS-CIMB, the OCBC team has upped its FY2022 and FY2023 DPU forecasts by 5.9% and 4.2% respectively as it factors in the distribution of the retained cash in FY2022. The team has also lowered finance costs for both years.
Their higher value estimate is due to the increase of its risk-free rate assumption to 1.9% from 1.55% previously.
DBS’s Rachel Tan and Derek Tan believe MCT’s best-in-class assets in Singapore will see the REIT “weather the storm”.
“The stock enjoys a scarcity premium as one of only two 100% Singapore-focused large-cap REITs which is highly valued by investors,” they write.
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In the same report, the analysts from DBS also see MCT’s VivoCity heading towards recovery and that it will “remain a desired mall for retailers post-Covid”.
“Our target price implies 1.3 times P/NAV which is close to 1 standard deviation (s.d.) above the historical mean and 4% dividend yield. MCT is currently trading at 1.2 times P/NAV, close to 0.5 s.d. below the historical average and 4.6% yield,” they add.
“Further relaxation of Covid-19 measures with higher cap of 75% (from 50% previously) to return-to-office and relaxation of travel borders will lead the recovery of MCT’s assets (especially VivoCity) and re-rate the stock.”
Maybank Kim Eng analyst Chua Su Tye sees MCT's results as in line with expectations.
On this, he has kept his forecasts on the REIT and rolled-over valuations to a higher dividend discount model (DDM)-based target price.
"Valuations are undemanding at 4.5% FY2022 yield on the back of recovering DPUs," he writes.
He adds that he expects MCT's DPUs to recovery in FY2022 following the decline in FY2020/2021 with the capital retention, and helped by the MBC II deal.
"Rental reversion should decelerate from strong double-digits to 1.5-2% in FY2021-2022 as VivoCity rents catch up with the market."
"Rents at business park assets to grow at 2-3% per annum (p.a.) due to limited supply and firm demand," he adds.
Units in MCT closed 1 cent higher or 0.5% up at $2.19 on April 30.
