August 2, 2022

Mapletree Commercial Trust

Recovery underway

■ 1QFY3/23 revenue/NPI in line with our estimates, at 25%/25.5% of our FY23F forecasts.

■ Tenant sales at VivoCity exceeded pre-Covid levels.

■ Reiterate Add rating with an unchanged TP of S$2.18.

1QFY3/23 business update highlights

MCT reported 1QFY3/23 gross revenue/NPI of S$135m/S$106.7m, +8.8% and +10.1% yoy, respectively, thanks to lower rental rebates and higher contribution from VivoCity and MBC. Topline and NPI were in line with our projections, at 25%/25.5% of our FY23F forecasts. Committed portfolio occupancy stood at 97.2% at end 1Q, up from 97% a quarter ago. Gearing ticked up slightly to 33.8% and all-in interest cost also inched up to 2.53% (from 2.4% in 4QFY3/22). MCT maintained a high fixed debt ratio of 78.6% as management has put priority on ensuring reasonable certainty over interest expenses in a bid to achieve an optimal balance between risks and costs.

Tenant sales exceeded pre-Covid levels in 1Q 

VivoCity’s revenue/NPI grew 34.6%/44.9% yoy in 1Q to S$55.2m/S$42.9m, on lower rental rebates, higher rental income turnover and step-up rents and greater car park income, even as occupancy remained relatively stable at 98.5%. 1QFY23 shopper traffic grew 50.9% while tenant sales improved a higher 53.3% to exceed pre-Covid levels. No rental reversion figures were shared in 1Q. Looking ahead, we expect VivoCity to continue to benefit from higher shopper footfall due to the easing of safe management measures and lifting of border restrictions. It has 4.9%/11.1% of portfolio income from retail leases due for expiry in 9MFY23F/FY24F.

Slight uptick in office occupancy 

Office/business parks 1Q revenue/NPI declined 4%/5.2% yoy to S$79.8m/S$63.8m respectively due to a high base from mTower with a one-off compensation from a lease pre-termination in the previous year. That said, committed occupancy levels at MBC improved qoq to 98.2%. According to property consultant CBRE, the positive office leasing momentum is likely to spill over into 2Q, as Singapore eases workplace restrictions. Within the business parks sector, there has been steady leasing interest from pharmaceutical and biomedical companies. MCT has 4.7%/9.8% of its portfolio income from office/business parks leases due to expire in 9MFY23F/FY24F.

Reiterate Add rating 

We keep our FY23-25F DPU estimates unchanged post results. Our current forecast has not included the effect of MCT’s proposed merger with MAGIC, which became effective from 21 Jul 2022. The merger could leapfrog MCT to be among the top 10 largest REITs in Asia and allow the enlarged entity to pursue accelerated growth opportunities. MCT is currently trading at c.5.1% FY23F yield. We maintain our Add rating with an unchanged DDM-based TP of S$2.18. Potential rerating catalysts include accretive acquisitions. Downside risks include weaker rental reversion.

ESG in a nutshell 

MCT scored a C in its combined ESG score in FY21, according to Refinitiv, with a C- for environmental, C for social and B- for governance. MCT scored an A+ in controversies. The company’s environmental pillar score was weighed down by weak emissions and environmental innovation scores while social pillar was weighed down by lack of disclosures in the human rights and community categories. As a REIT, MCT has obtained several real estate sustainability certifications, which is the main benchmark for the real estate industry, and has set targets for responsible practices.

ADD by CGS-CIMB Research.  Share price closed at S$1.90