A stable quarter despite challenges
? MCT’s 9MFY22 NPI of S$291.3m (+5.6% yoy) came in line with our forecast.
? Lower rental rebate and lease pre-termination compensation boosted 9MFY22 revenue.
? Upgrade to Add. MCT is trading at a more palatable valuation.
Lower rental rebates boosted 9MFY22 revenue and NPI
Mapletree Commercial Trust’s (MCT) 9MFY22 revenue of S$374m (+7.3% yoy) was mainly due to lower rental rebates as compared to a year ago, as well as higher compensation received from lease pre- terminations. In tandem with the increase in revenue, NPI climbed 5.6% yoy to S$291.3m, which came in line at 76% of our full-year forecast. All properties reported stronger revenue in 9MFY22, except for Mapletree Anson, which saw a slight 0.8% drop in revenue due to lower occupancy.
VivoCity’s tenant sales recovered close to pre-Covid 19 levels
VivoCity’s 9MFY22 revenue and NPI increased 15.1% yoy and 12.9% yoy to S$135m and S$99.8m respectively, driven by lower rental rebates yoy. YTD FY22, MCT distributed 1.1 months of rental rebates for eligible tenants vs. 4.4 months in the full year of FY21. 3QFY22 tenant sales further recovered to almost 90% of pre-pandemic levels due to easing Covid19 restrictions from Nov 2021 and strong festive spending. Shopper traffic improved qoq in 3QFY22 but remained at c.50% of pre-Covid 19 levels. Actual occupancy rate of VivoCity w as flattish qoq at 98.4% in 3QFY22 vs. 98.6% in 2QFY22. Committed occupancy was slightly lower at 98.9% vs. 99.6% in 2QFY22.
Relatively stable performance from office/business park
Office/business park’s 9MFY22 revenue and NPI improved 3.3% and 2.2% yoy to S$239m and S$191.6m, respectively, driven by MBC, mTow er and MLHF. It continued to make progress in backfilling mTower, resulting in its committed occupancy improving from 80.4% in 2QFY22 to 87.6% in 3QFY22. The majority of mTower’s vacancy was due to the negotiated pre-termination of a lease and the compensation received in 2QFY22 was able to provide more than a year’s rent. MBC experienced a 1.2% pts qoq decline in actual occupancy to 92.8% but committed occupancy remained stable at 96.7% in 3QFY22. Mapletree Anson’s committed occupancy continued to slip on a qoq basis to 95.9% but this is a smaller asset, contributing to 6.8% of MCT’s 9MFY22 portfolio revenue.
Upgrade from Hold to Add at a lower DDM-based TP of S$2.18
MCT’s share price has depreciated by 8% since the announcement of the merger with MAGIC on 31 Dec 2021. While MCT will lose its status as a pure Singapore REIT post merger, w e think the benefits of the merger could be felt in the longer run when the enlarged entity delivers accelerated growth prospects. The REIT is now trading at a more palatable valuation of 5.2% yield. Our TP has factored in higher COE to reflect the rising interest rate environment. Upside/downside risks include accretive acquisition/w eaker rental reversion.