Focus on portfolio resilience
? MUST saw a dip in portfolio occupancy in 1Q22 but reversions improved qoq
to +3.9%.
? In the near-term, it is focusing on boosting leasing activity in addition to
exploring inorganic growth opportunities.
? Reiterate an Add rating with a lower DDM-based TP of US$0.86.
1Q22 business update
MUST achieved a lower portfolio occupancy qoq at 91.6% at end-1Q22 (vs. 92.3% at end4Q21), due to lower occupancy at Figueroa, Peachtree, Exchange, Centerpointe, and
Capitol, partly offset by improved take-up at Michelson. Physical occupancy at MUST’s
buildings average 32-34% for Apr/May vs. 2.3% in 1Q22. Portfolio weighted average lease
expiry stood at five years as at end-1Q. Balance sheet metrics remained stable qoq with
gearing at 42.8% and interest cover of 3.4x.
Positive rental reversion of 3.9%
MUST signed 68k sqft of leases in 1Q22, of which 54% are new leases. New demand
came from accounting, real estate and finance and insurance sectors. It achieved a better
qoq positive rental reversion of 3.9%, within its guidance of low- to mid-single digit
reversions for FY22F. MUST has a balance of 6.4%/13.1% of leases due to expire in
9MFY22F/FY23F. According to property consultant Jones Lang Lasalle, the US office
leasing market appears to have improved with 1Q22 industry-wide leasing volume +13.8%
qoq and overall leasing volume at 80% of pre-pandemic levels. In addition to more proactive marketing strategies, MUST will continue to drive its leasing activities by repurposing
space, increasing spec suites and co-working exposure as well as adopting more flexible
lease terms including forward renewals, shorter lease terms with lower tenant incentives.
In terms of operating costs, MUST indicated that while utilities make up c.11% of opex,
these costs are mainly borne by tenants and there is likely to be a minimal impact on MUST.
Looking at both organic and inorganic growth opportunities
In terms of capital management, MUST’s weighted all-in cost of funds stands at 2.86% as
at end-1Q22. MUST has obtained refinancing commitment for US$207m of debt maturing
in FY22. With 86.5% of its debt in fixed rate loans, MUST indicated that for every 1%
increase in funding cost, its DPU will decrease 0.075 UScts (or 1.4% of FY21 DPU). While
its near-term focus is on improving leasing and portfolio occupancy, management will
continue to explore inorganic growth opportunities and increasing its exposure in growth
cities or tenants in growth sectors, including exploring portfolio optimisation strategies to
enable capital recycling for growth.
Reiterate Add rating
We keep our FY22-24F DPU estimates unchanged post update. However, we tweak down
our DDM-based TP from US$0.89 to US$0.86, due to a slightly higher cost of equity
assumption of 7.84% (vs. 7.58% previously). At a projected FY22F dividend yield of 9.6%,
much of the slower near-term growth has been priced in, in our view. Potential re-rating
catalysts: better-than-expected rental reversions and faster-than-expected ramp-up in
portfolio occupancy. Key downside risk: protracted slowdown in the US economy which
could dampen appetite for office space.