DPU in line with street; growth catalysts
2H22 DPU rose c.6% HoH, or c.17% HoH if including capital distributions,
with growth underpinned by higher occupancy and positive rental
reversions. We see leasing strengthening in FY23E with rising demand for
office space and improving retail sentiment. DPU was in line with our
estimate and the street, and we maintain our forecasts and SGD2.35 DDMbased TP (COE: 5.8%, 2.0%). Valuations at 5% dividend yield and c.3% 2-
year DPU CAGR are undemanding vs history. We see catalysts from stronger
growth in tenant sales, rental recovery and financial accretion from its
proposed merger with MNACT. Maintain BUY.
Higher occupancy, improvements likely
Portfolio occupancy rose to 94.3% in 4Q22 (from 92.5% in 3Q22), and
improvements were broad-based. At VivoCity, it rose from 98.4% to 98.6%,
MBC (92.8% to 94.0%), mTower (75.5% to 84.7%) and Mapletree Anson
(92.8% to 95.0%), as MLHF stayed fully occupied. Committed occupancy
was higher at 97.0% with successful backfilling at VivoCity (to 99.2%), MBC
(97.3%), mTower (88.0%) and Mapletree Anson (100.0%). At MBC,
management shared that Google (11% of 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.
Recovery at VivoCity to strengthen
2H22 revenue/ NPI at VivoCity jumped 21% HoH/ 24% HoH due to declining
rent rebates, rental step-ups and higher carpark income, with an easing
of anti-Covid measures from Nov 2021. Tenant sales rose 10.3% YoY in 4Q22
as a result (from +3.7% YoY in 3Q22), returning to pre-Covid levels and
outpacing the rebound in footfall. We see upside as the atrium space has
re-opened, which contributed c.2% of the mall’s gross rental income, and
as more workers return to the office. Retail rental reversions were +2.1%
in FY22 (vs +3.5% in 1H22 and -9.6% in FY21), and management is targeting
positive reversions in FY23.
Strong balance sheet, awaiting completion of merger
MCT’s balance sheet remains strong with gearing at 33.5% (vs 34.1% as at
end-Dec 2021), interest cover high at 4.8x, and borrowing cost stable at
2.40% (from 2.39%). While MCT’s SGD2.5b debt headroom (at 50% limit)
offers deal options, we see accelerated growth upon a successful MNACT
merger. With a higher SGD3.8b debt capacity and SGD1.7b AEI/
development headroom, we expect the larger MPACT to embark on more
sizeable office acquisitions with its enlarged Pan Asian mandate