DPU in Line With Street; Growth Catalysts

• Mapletree Commercial Trust (SGX:N2IU)'s 2H22 DPU rose ~6% h-o-h, or ~17% h-o-h if including capital distributions, with growth underpinned by higher occupancy and positive rental reversions. We see leasing strengthening in FY23E with rising demand for office space and improving retail sentiment.
• Mapletree Commercial Trust's DPU was in line with our estimate and the street, and we maintain our forecasts and DDM-based target price (COE: 5.8%, 2.0%).
• Mapletree Commercial Trust's valuations at 5% dividend yield and ~3% 2-year DPU CAGR are undemanding vs history.
• We see catalysts from stronger growth in tenant sales, rental recovery and financial accretion from its proposed merger with Mapletree North Asia Commercial Trust (SGX:RW0U).

Higher Occupancy, Improvements Likely

• Mapletree Commercial Trust's portfolio occupancy rose to 94.3% in 4Q22 (from 92.5% in 3Q22), and improvements were broad-based. At VivoCity, it rose from 98.4% to 98.6%, MBC (92.8% to 94.0%), mTower (75.5% to 84.7%) and Mapletree Anson (92.8% to 95.0%), as MLHF stayed fully occupied.
• Committed occupancy was higher at 97.0% with successful backfilling at VivoCity (to 99.2%), MBC (97.3%), mTower (88.0%) and Mapletree Anson (100.0%).
• At MBC, management shared that Google (11% of gross rental income) has renewed leases with positive reversions (on average), but guided for potentially weaker reversions for the asset’s older more aggressively-priced leases.

Recovery at VivoCity to Strengthen

• Mapletree Commercial Trust's 2H22 revenue/ NPI at VivoCity jumped to the office.
• Retail rental reversions were +2.1% in FY22 (vs +3.5% in 1H22 and -9.6% in FY21), and management is targeting positive reversions in FY23.

Strong Balance Sheet, Awaiting Completion of Merger

• Mapletree Commercial Trust’s balance sheet remains strong with gearing at 33.5% (vs 34.1% as at end-Dec 2021), interest cover larger MPACT to embark on more sizeable office acquisitions with its enlarged Pan Asian mandate.
• Maintain BUY.

Source: Maybank Research - 21 Apr 2022