MCT

MCT (S$1.36): Steady 2QFY16 supported by rental uplift at VivoCity

MCT’s 2QFY16 results came in line as DPU climbed 2.5%y/y to 2.02¢ on a stronger distributable income of $42.8m (+3.3%). This lifted 1HFY16 DPU to 4.03¢ or 49% of full year consensus estimate.

Gross revenue inched up 1.9% to $71.3m, contributed mainly by higher rental income arising from positive rental reversion and step-ups at VivoCity (+4.4%), but partially offset by Mapletree Anson (-12%) which recorded lower occupancy versus full occupancy the previous year.

Both shopper traffic (+3.1%) and tenant sales (+5.5%) at the retail mall made a strong comeback in 2QFY16 after dipping 6.7% and 2% respectively in the prior quarter.

Top line aside, property expenses were trimmed by 7.6% to $16.5m, resulting from lower electricity consumption and tariff rates. Accordingly, NPI was bumped up by 5.1% to $54.8m but was shaved by higher finance expenses of $9.9m (+14.6%).

Overall portfolio occupancy strengthened marginally by 1.1ppt q/q to 96.6%, largely lifted by improvements at Mapletree Anson (+4.3ppt) and PSA Building (+2.4ppt), while weighted average lease-to-expiry was extended slightly to 2.3 years from 2.2 years.

Aggregate leverage and average cost of debt held at 36.4% and 2.4% respectively, as average debt tenor shortened to 3.9 years (1QFY16: 4.1 years). Proportion of fixed debt also remained unchanged at 70.6%.

Looking ahead, MCT is cautious about the outlook for the retail industry as manpower issues, tepid retail sales and swelling business costs deter retailers has deterred retailers from expanding their business, with a few planning to consolidate their stores.

The office segment is not faring any better as tenants were kept at bay by anticipation of further rental pressure when a new wave of supply comes on stream in 2H16.

However, management expects MCT's properties to maintain their resilience given their location within commercial hubs.

MCT currently offers an annualised 1HFY16 yield of 5.9% at 1.1x P/B.

Latest broker ratings:
Credit Suisse upgrades to Outperform with TP of $1.62
Deutsche maintains Buy, with TP of $1.44
CIMB maintains Hold, cuts TP to $1.44 from $1.54.
Maybank-KE maintains Sell with a TP of 1.32