2HFY22: Emerging Stronger From COVID-19 Pandemic

VivoCity and its office/business park portfolio achieved positive rental reversion of
2.1% and 1.7% respectively in 1HFY22 despite the COVID-19 pandemic. The easing of
safe distancing measures this week will improve shopper traffic and tenant sales at
VivoCity and physical occupancy at its office/business park properties. The merger with
MNACT is accretive to pro forma 1HFY22 DPU by 7.5% (scrip-only) to 8.9% (scrip-andcash and cash-only). Maintain BUY. Target price: S$2.52.

RESULTS

• Mapletree Commercial Trust (MCT) reported DPU of 5.14 S cents for 2HFY22 (-3.4% yoy),
which is in line with our expectations. 2HFY21 was a high base as property tax rebate, cash
grants and wage support from job support scheme was received in 2HFY21. MCT has
released S$15.8m of cash previously retained in 2HFY22. On a normalised basis,
distributable income dropped 5.2% yoy, excluding retained cash that was released.

• VivoCity: sustaining positive reversion despite COVID-19 pandemic. Actual occupancy
edged higher by 0.2ppt qoq to 98.6%. Committed occupancy remains high at 99.2%.
VivoCity maintained positive rental reversion of 2.1% in FY22 and signing rents were similar
to pre-COVID-19 levels. 172 leases were committed and retention rate was healthy at
78.6%. Dyson opened its largest demo store in Southeast Asia at VivoCity during the
quarter. MCT provided rental rebates of 1.4 months of fixed rents to eligible retail tenants in
FY22, of which 0.3 months or S$5m was disbursed in 4QFY22.

• Tenant sales increased 10% yoy to S$224m in 4QFY22, benefitting from the series of safe
distancing measures being eased since January and pent-up consumption. Tenant sales
have recovered back above pre-COVID-19 levels in 4QFY22.

• Office/business park: positive leasing momentum. Occupancy for MBC edged higher by
1.2ppt qoq to 94% in 4QFY22 (MBC I: 90% and MBC II: close to full occupancy). Google has
renewed a substantial portion of its leases at MBC II in Nov 21. MCT has secured new Fast
Moving Consumer Goods (FMCG) and technology tenants at MBC I. Committed occupancy
at MBC is higher at 97.3% as of Mar 22. MCT will gradually ratchet up signing rents currently
at about S$6.50psf/month. Actual occupancy for mTower has improved 9.7ppt qoq to 84.7%
as MCT continues to backfill vacant spaces. Merrill Lynch HarbourFront (MLHF) maintained
full occupancy. MCT’s office/business park portfolio achieved positive rental reversion of
1.7%.

• Maintains resilient balance sheet with low aggregate leverage of 33.5%. MCT’s average allin cost of debt was stable at 2.4%. It has cash and undrawn committed facilities of more than
S$500m, which provides financial flexibility. Its average debt maturity is 3.3 years and no more
than 24% of debt is due in any financial year.

• Substantially hedged against volatility in interest rates. MCT has increased the proportion
of borrowings hedged to fixed interest rates from 75.3% to 80.3%. Management estimated that
every 50bp change in SOR/SORA has a negative impact on DPU of 0.09 S cents. Assuming
that the Fed Funds Rate averages 2.5% in 2023, we estimate that average cost of debt will
increase to 2.7%.

STOCK IMPACT

• From Dorscon Orange to Yellow. Singapore has downgraded the Disease Outbreak
Response System Condition (Dorscon) level from orange to yellow (Singapore was at Dorscon
orange for more than two years since Feb 20). The cap on group size of 10 persons for dining
in at F&B establishments was removed. Safe distancing between individuals is no longer
required, whether indoors or outdoors. All employees are allowed back to their workplaces
starting 26 Apr 22, compared to the existing limit of 75%. The capacity limit of 75% imposed on
large events of more than 1,000 participants will be removed. Fully-vaccinated travellers and
children aged 12 and below arriving via air or sea checkpoints are no longer required to take
pre-departure COVID-19 tests. The substantial easing will improve shopper traffic and tenant
sales at VivoCity and physical occupancy at MCT’s office/business park properties.

• Festival Walk in recovery mode. The relaxation of social distancing measures and rising
COVID-19 vaccination rate in Hong Kong has led to improved retail sentiments in 2HFY22.
Average rental reversion for Festival Walk has narrowed from negative 32% in 9MFY22 to
negative 18% in 4QFY22. The easing of the restrictive measures to take effect from 21 Apr 22
will further spur consumer sentiment and improve tenant sales at Festival Walk. Total rental
reliefs granted to retail tenants was S$14.7m in FY22, much lower than S$49.8m incurred in
FY21.

• Merger with MNACT is yield accretive. The merger with Mapletree North Asia Trust’s
(MNACT) to create Mapletree Pan Asia Commercial Trust (MPACT) is accretive to pro forma
1HFY22 DPU by 7.5% (scrip-only) to 8.9% (scrip-and-cash and cash-only). It is also accretive
to MCT’s NAV per unit by 6.5%. Management sees VivoCity, Mapletree Business City and
Festival Walk as core assets. The merged REIT could consider pursuing more acquisitions in
Japan.

• Coping with higher cost of electricity. Management disclosed that electricity accounted for
S$7m or 7% of operating expenses. Its current supply contract for electricity expires in Oct 22.
Thus, MCT will be affected by higher cost of electricity in 2HFY23 (five months of negative
impact).

EARNINGS REVISION/RISK

• We raise our FY23 DPU forecast by 3% due to recovery at VivoCity, partially offset by negative
impact from higher interest rates and higher cost of electricity. Our FY24 DPU forecast is
relatively unchanged.

VALUATION/RECOMMENDATION

• Maintain BUY. Our target price of S$2.52 is based on DDM (cost of equity: 5.75%, terminal
growth: 1.8%).

SHARE PRICE CATALYST

• Steady recovery in shopper traffic and tenant sales at VivoCity, accompanied by return of office
workers and tourists.

• GSW will increase the population of residents staying within VivoCity’s catchment area. Its
office buildings, namely MBC I, MBC II, mTower and Merrill Lynch HarbourFront (MLHF), will
benefit from an expanded pool of potential employees.

• Development of tourism attractions at Sentosa and Pulau Brani, which will improve shopper
traffic and tenant sales at VivoCity.