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MCT recovery underway as proposed merger could see the REIT grow significantly larger

Bryan Wu
·3-min read

The merged entity Mapletree Pan Asia Commercial Trust would become one of the largest REITs by market cap listed in Asia.

Mapletree Commercial Trust (MCT) is on its way to recovery, say analysts from OCBC Investment Research, CGS-CIMB Research and Citi Research. Each of them have maintained their calls of “hold”, “add” and “neutral” respectively.

OCBC analysts, who reduced their target price (TP) for the REIT from $1.95 to $1.90 due to a higher risk-free rate assumption of 3.25% from 2.5%, say that ​​notwithstanding macroeconomic and industry headwinds from the Covid-19 pandemic, they see firmer signs of recovery and believe MCT’s strong parentage and healthy balance sheet will allow it to tide over near-term uncertainties, while its strong management team and portfolio are well-positioned over the longer-term.

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“MCT previously offered investors a unique exposure to the retail, office and business park sub-sectors in Singapore, given its portfolio of best-in-class assets such as VivoCity and Mapletree Business City. This is poised to change given that the merger with Mapletree North Asia Commercial Trust (MNACT) via a trust scheme of arrangement became effective on July 21,” writes the OCBC team.

The merged entity Mapletree Pan Asia Commercial Trust (MPACT) would become one of the largest REITs by market capitalisation listed in Asia, with a significantly larger scale and platform which is better positioned to unlock upside potential. OCBC believes this change will gain MCT new exposure to “riskier markets” and see dilution to its “pure-play Singapore status”.

CGS-CIMB’s Lock Mun Yee maintains her TP at $2.18 without including the effects of MCT’s merger, which she claims could see MCT “leapfrog” to be among the top 10 largest REITs in Asia, allowing the enlarged entity to pursue “accelerated growth opportunities”.

The analyst also highlights MCT’s 1QFY2023 gross revenue and net property income (NPI) of $135 million and $106.7 million, up 8.8% and 10.1% year-on-year (y-o-y) respectively, due to lower rental rebates and higher contribution from VivoCity and Mapletree Business City (MBC) and “in line” with her projections, making up 25% and 25.5% of her FY2023 forecasts.

Committed portfolio occupancy stood at 97.2% at the end of 1QFY2023, up from 97% a quarter ago, while gearing ticked up slightly to 33.8% and all-in interest cost also inched up to 2.53%
from 2.4% in 4QFY2023, she writes.

“MCT maintained a high fixed debt ratio of 78.6% as management has put priority on ensuring reasonable certainty over interest expenses in a bid to achieve an optimal balance between risks and costs,” adds Lock.

Citi’s Brandon Lee, whose TP for MCT stands at $1.90, notes positively that MCT’s tenant sales surged 53% y-o-y, an 11% increase quarter-on-quarter (q-o-q) to around $248 million, representing 19% above pre-Covid levels in 1QFY2020 compared to just 2% of pre-Covid levels in the preceding quarter.

Portfolio committed occupancy also inched up 0.2% points q-o-q to 97.2%, with MBC’s increase of 0.9% points to 98.2% more than offsetting declines in mTower  and VivoCity’s losses of 1.2 percentage points to 86.8% and 0.7 percentage points to 98.5% while two other buildings stayed flat. Lee notes that unlike preceding quarters, actual occupancies of assets were not provided in MCT’s report.

However, the Citi analyst adds that shopper traffic, despite marking y-o-y and q-o-q increases of  51% and 32% respectively, of 9.1 million visitors to VivoCity, remains 31% below pre-Covid level, though this marked an improvement from 47% below pre-Covid during the last quarter.

Overall, Lee forecasts muted share price impact on limited financials with an expected dividend yield of 5.3%.

As at 12.12pm, shares in MCT were trading flat at $1.94.

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