Maybank Group Research analyst Chua Su Tye has kept a “buy” rating on Mapletree Commercial Trust (MCT) with an unchanged target price of $2.35.
The REIT’s distribution per unit (DPU) for the 2HFY2022 ended March stood in line with Chua’s estimates, as well as the estimates of the street. During the period, MCT’s DPU rose 6% h-o-h or approximately 17% h-o-h if including capital distributions, with growth underpinned by higher occupancy and positive rental reversions.
“We see leasing strengthening in FY2023 with rising demand for office space and improving retail sentiment,” the analyst says in his April 21 report.
In addition to his unchanged target price, Chua has also kept his DPU estimates for FY2023 unchanged.
In 4QFY2022, MCT saw portfolio occupancy increase to 94.3% from 92.5% in the quarter before, on the back of broad-based improvements across the REIT’s properties.
For VivoCity, portfolio occupancy levels rose from 98.4% to 98.6%, while Mapletree Business CIty (MBC) saw occupancy increase from 92.8% to 94.0%. mTower reported a higher occupancy of 84.7% from 75.5%, while Mapletree Anson saw occupancy increase to 95.0% from 92.8%. Bank of American Merrill Lynch Harbour Front (MLHF) stayed fully occupied.
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Furthermore, committed occupancy was higher at 97% with successful backfilling at VivoCity to 99.2%, MBC to 97.3%, mTower to 88% and Mapletree Anson at 100%.
At MBC, management also shared that Google – which comprises 11% of its gross rental income– has renewed leases with positive reversions on average, but guided for potentially weaker reversions for the asset’s older more aggressively-priced leases.
Additionally, MCT’s 2HFY2022 revenue and net property income (NPI) at VivoCity jumped 21% h-o-h and 24% h-o-h respectively due to declining rent rebates, rental step-ups and higher carpark income, with the easing of anti-Covid measures from November 2021.
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This resulted in tenant sales rising 10.3% y-o-y in 4QFY2022 from +3.7% y-o-y in 3QFY2022, returning to pre-Covid levels and outpacing the rebound in footfall.
“We see upside as the atrium space has re-opened, which contributed approximately 2% of the mall’s gross rental income, and as more workers return to the office,” Chua says.
Meanwhile, retail rental reversions were up 2.1% in FY2022 as compared to up 3.5% in 1HFY2022 and down 9.6% in FY2021, and management is targeting positive reversions in FY2023.
MCT’s balance sheet has been strong with gearing at 33.5%, as compared to 34.1% as at end-Dec 2021, with an interest cover high at 4.8x and borrowing cost stable at 2.40%-- an increase from 2.39% previously.
“While MCT’s $2.5 billion debt headroom at a 50% limit offers deal options, we see accelerated growth upon a successful Mapletree North Asia Commercial Trust (MNACT) merger,” says Chua. “With a higher $3.8 billion debt capacity and $1.7 billion Asset Enhancement Initiative (AEI) development headroom, we expect the larger Mapletree Pan Asia Commercial Trust (MPACT) to embark on more sizeable office acquisitions with its enlarged Pan Asian mandate.”
To this end, Chua says he sees catalysts from stronger growth in tenant sales, rental recovery and financial accretion from its proposed merger with MNACT.
As at 4.13pm, units in MCT are trading 1 cent lower and 0.52% down at $1.91 with an FY2023 dividend yield of 5%.
Photo: MNACT
