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Analysts positive on MCT despite 1H DPU, expects DPUs to recover in FY21

Felicia Tan
Felicia Tan10/27/2020 12:31 PM GMT+08  • 4 min read
Analysts positive on MCT despite 1H DPU, expects DPUs to recover in FY21
As at 12.33pm, units in MCT are trading flat at $1.85.
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Analysts from DBS Group Research, Maybank Kim Eng and UOB Kay Hian have maintained their “buy” calls and target prices of $2.25, $2.15 and $2.35 respectively on Mapletree Commercial Trust (MCT) despite the decline in its 1HFY2020/2021 distribution per unit (DPU) announced on Oct 22.

See: Mapletree Commercial Trust's 1H DPU drops 9.9% to 4.17 cents

For 1HFY2020/2021 ended September, MCT reported a 9.9% y-o-y drop in DPU to 4.17 cents.

While distributable income increased 3.2% y-o-y to $138.4 million for the half-year period, this included $15.0 million of the $43.7 million withheld in 4QFY2019/2020 to conserve liquidity.

On a like-for-like basis, distributable income stood 7.9% y-o-y lower at $123.4 million.

For DBS analysts Rachel Tan and Derek Tan, while MCT’s lower DPU came in slightly lower than estimated, they believe MCT’s assets – including VivoCity, MBC I and MBC II – are best in their respective asset classes and will help the REIT see through the period of turbulence.

Both analysts also see VivoCity as a “dominant mall” that is headed towards recovery, and will remain a “desired mall” for retailers post-Covid-19.

“We believe MCT’s best-in-class portfolio will enable the REIT to weather the COVID-19 storm. The stock enjoys a scarcity premium as one of only two 100% Singapore-focused large-cap REITs which is highly valued by investors,” they write in an Oct 23 report.

For VivoCity, MCT saw “encouraging resumption” of shopper activities with tenant sales at around 80% of pre-Covid-19 levels in September 2020.

While the year looks to remain challenging for retail, recovery in shopper traffic and tenant sales have been encouraging and is expected to pick-up further as Singapore moves progressively to Phase 3 of its re-opening at the end of 2020.

“[MCT’s] office portfolio remains relatively steady and delays in the completion of development projects should dissipate over-supply concerns in the near-term,” say the analysts.

MCT’s business parks are also seeing some demand from the tech sector that could offset some large occupiers have cut back on space requirements.

“Given the tight supply in the City Fringe, good quality business parks will continue to garner interests,” they add.

Maybank Kim Eng’s Chua Su Tye says MCT’s DPU for 1H2020/2021 came in line with consensus and the brokerage’s estimates as it returned a third (or $15.0 million) of the capital retained in 4QFY2019/2020.

He also remains positive on the REIT due to rising contributions from its office and business park assets and “undemanding” valuations at 4.9% FY2022 yield.

For Chua, VivoCity may have entered into a negative reversion cycle amid slow demand, but he believes MCT’s “asset management know-how” should help cushion occupancies and net property income (NPI).

On that, Chua says he expects MCT’s DPU to recover in FY2021 following the decline in FY2020 with the capital retention.

“Rental reversion should decelerate from strong double-digits to 1.5-2% in FY2021-2022E as VivoCity rents catch up with the market. Rents at business park assets to grow at 2-3% per annum on limited supply, and firm demand,” he notes.

UOB Kay Hian’s Jonathan Koh and Loke Peihao says MCT’s 1HFY2021 results came in above their expectations due to the release of the $15 million previously retained in 4QFY2020.

The way they see it, VivoCity is affected by the absence of tourist spending by MBC I and MBC II will benefit from demand from technology and pharmaceutical companies.

Koh and Loke are also positive on MCT due to the ongoing recovery at VivoCity and its asset enhancement works at the promenade-facing food and beverage cluster on the first floor of the mall.

They add that MCT’s five properties located in the Harbourfront area will benefit “immensely” from the redevelopment of the Sentosa-Brani master plan where Sentosa Island and Pulau Brani will be redeveloped into five zones with a unique experience such as nature and heritage trails for each.

However, Koh and Loke have trimmed their FY2022 DPU forecast by 3.8% due to the full impact of negative rental reversion in FY2021. They have kept their DPU estimate for FY2023 “relatively unchanged”.

As at 12.33pm, units in MCT are trading flat at $1.85.

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