Stronger 3Q22
MCT’s revenue/ NPI jumped 8.9% QoQ/ 9.1% QoQ in 3Q22, from a stronger performance at VivoCity, with its recovery expected to gain traction in coming quarters. Occupancies were lower across its assets but are expected to improve on the back of stronger leasing momentum in FY23. The results were operationally in line with our estimates and the street, and we maintain our forecasts and SGD2.35 DDM-based TP (COE: 5.9%, 2.0%). Valuations have pulled back following the announcement of its proposed merger with MNACT on 31 Dec 2021 due to investor concerns on its diluted pure-play AUM. Beyond the strong financial accretion, we continue to see clear strategic merits of the deal. BUY.
Lower occupancies set to improve
Portfolio occupancy was lower at 92.5% (from 93.3% in 2Q22), with dips at VivoCity (from 98.6% to 98.4%), MBC (94.0% to 92.8%), mTower (75.5% to 75.0%) and Mapletree Anson (93.9% to 92.8%), while MLHF remained fully occupied. Committed occupancy was stronger at 96.3%, helped by successful backfilling at MBC (at 96.7%), mTower (87.6%), and Mapletree Anson (95.9%). We expect leasing momentum to strengthen in FY23 from stronger office demand growth and improving retail sentiment.
VivoCity recovery slower than peers
Revenue/ NPI at VivoCity fell 1.1%/ 4.1% YoY, but they jumped 23.2% QoQ/ 27.6% QoQ, driven by strong festive spending and some easing of antiCovid measures from Nov 2021. Tenant sales rose 3.7% YoY, ahead of footfall, to nearly 90% of pre-Covid levels; tenant sales recovery has outpaced footfall through 9M21 at +17.8% YoY versus +10.2% YoY. MCT’s performance has trailed FCT (with tenant sales at 100-106% and footfall at 54-66%) and SUN (with tenant sales in Dec 2021 above Dec 2019), due to limitations on large-scale sales events, but upside is seen from further relaxation of capacity restrictions in FY23.
Strong balance sheet, upside from deals
MCT’s balance sheet remains strong with gearing at 34.1% (versus 33.7% as at end-Sep 2021), interest cover stable at 4.8x, and borrowing costs falling to 2.39% (from 2.42%). While MCT’s SGD1.8b debt headroom (at 45% limit) offers deal options, we see accelerated growth from a higher SGD3.8b debt capacity and SGD1.7b AEI/ development headroom, upon a successful MNACT merger, as we expect the larger MPACT to embark on more sizeable office acquisitions with its enlarged Pan Asian mandate.