Mapletree Commercial Trust - UOB Kay Hian 2022-04-25: 2HFY22 Emerging Stronger From COVID-19 Pandemic


Mapletree Commercial Trust - 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 Mapletree North Asia Commercial Trust is accretive to pro forma 1HFY22 DPU by 7.5% (scrip-only) to 8.9% (scrip-and-cash and cash-only).
  • Maintain BUY rating on Mapletree Commercial Trust. Target price: S$2.52.

Mapletree Commercial Trust's 2HFY22 Results

  • Mapletree Commercial Trust (SGX:N2IU) reported DPU of 5.14 cents for 2HFY22 (-3.4% y-o-y), 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. Mapletree Commercial Trust has released S$15.8m of cash previously retained in 2HFY22. On a normalised basis, distributable income dropped 5.2% y-o-y, excluding retained cash that was released.
  • VivoCity: sustaining positive reversion despite COVID-19 pandemic. Actual occupancy edged higher by 0.2ppt q-o-q 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. Mapletree Commercial Trust 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% y-o-y 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 q-o-q 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. Mapletree Commercial Trust 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.
  • Mapletree Commercial Trust will gradually ratchet up signing rents currently at about S$6.50psf/month. Actual occupancy for mTower has improved 9.7ppt q-o-q to 84.7% as Mapletree Commercial Trust continues to backfill vacant spaces. Merrill Lynch HarbourFront (MLHF) maintained occupancy. Mapletree Commercial Trust’s office/business park portfolio achieved positive rental reversion of 1.7%.
  • Maintains resilient balance sheet with low aggregate leverage of 33.5%. Mapletree Commercial Trust’s average all-in 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.

  • Mapletree Commercial Trust 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 cents. Assuming that the Fed Funds Rate averages 2.5% in 2023, we estimate that average cost of debt will increase to 2.7%.

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 Mapletree Commercial Trust’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 Commercial Trust (SGX:RW0U)’s 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 Mapletree Commercial Trust'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, Mapletree Commercial Trust will be affected by higher cost of electricity in 2HFY23 (five months of negative impact).

Mapletree Commercial Trust - Earnings forecast revision & recommendation

Jonathan KOH CFA UOB Kay Hian Research | https://research.uobkayhian.com/ 2022-04-25
SGX Stock Analyst Report BUY MAINTAIN BUY 2.52 UP 2.480