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Can the Dividend Growth at Mapletree Commercial Trust Continue? Part 2

Welcome to the second part of the article on Mapletree Commercial Trust  (SGX: N2IU). In my previous article, I covered important facets of the trust’s revenue streams. In here, I’d look at the trust’s net property income and debt profile.

As a recap: Mapletree Commercial Trust has outperformed the market since its listing. The real estate investment trust has recorded capital gains of about 60% from 27 April 2011 to its closing price on 31 December 2014. By comparison, the SPDR STI ETF (SGX: ES3), a proxy for the Straits Times Index (SGX: ^STI), has climbed by only 5.6% in price for the same duration.

Over the past three plus years between 2011 and 2014, Mapletree Commercial Trust has distributed a steady annual dividend totaling around 23 cents per share.

Financial Year Distribution per unit (Singapore cents)
2011/2012 5.3
2012/2013 6.5
2013 / 2014 7.4
First half of 2014/2015 3.9

Source: Mapletree Commercial website; author’s calculation

At the local front, Mapletree Commercial Trust has ownership of Singapore’s largest mall, VivoCity, as well as the PSA building, Bank of America Merrill Lynch HarbourFront (MLHF) and Mapletree Anson.

A closer look

In the three years between FY11/12 (financial year ended 31 March 2012) and FY13/14, Mapletree Commercial Trust grew its overall revenue by a grand total of 56%. Ideally, we would like to see the revenue dollars drip down to the bottomline. For that, we look into the Net Property Income (NPI) of the properties. The NPI is defined as the gross rental revenue of a property minus all related expenses.

 Mapletree MCT - 3

Source: Company Earnings Presentation; FY11/12 is from 27 April 2011 to 31 March 2012

Over the three financial years above, the NPI for Mapletree Commercial Trust grew by about 58%. The pace of growth is slightly faster than revenue, so that’s a positive sign. It should be no surprise that VivoCity was the primary contributor to NPI, with 63% of total NPI. It is the NPI for the PSAB property though, that grew the most during this timeframe. The acquisition of the Anson property also helped to grow NPI for the trust.

 Mapletree MCT - 4

Source: Company Earnings Announcement; FY11/12 is from 27 April 2011 to 31 March 2012

The retail segment again is the main contributor to NPI, making up 65% of total NPI for Mapletree Commercial Trust. NPI margin for the office segment though is better than the retail segment. On the other hand, the office segment is also more sensitive toward economic changes as well.

Finally, Foolish investors might also want to look at the debt profile of Mapletree Commercial Trust. The gearing ratio, type of funding, and interest coverage ratio may be of interest. To do that, we can look at the REIT’s latest quarterly earnings presentation for the quarter ended 30 September 2014.

Debt Outstanding $1.6 billion
% Fixed Debt 70.60%
Gearing Ratio 38.00%
Interest Coverage Ratio 5.4 times
Average Term to Maturity of Debt 3.1 years
Weighted Average All-In Interest Cost 2.17%

Source: Company earnings presentation

We have to keep an eye out on how Mapletree Commercial Trust conducts its debt refinancing for FY15/16 and FY16/17 when about 44% of its total debt becomes due. Overall, the trust’s debt profile suggests that it is relatively protected against interest rate changes in the immediate future. The weighted average all-in interest cost also looks competitive at 2.17%.

Foolish summary

Mapletree Commercial Trust has done well to grow its dividend over the past three financial years. Its proximity to Genting Singapore PLC (SGX: G13)’s Resorts World Sentosa and casino makes it a prime shopping mall location. In line with this, the REIT’s shopper traffic also grew on a year-on-year basis for the first half of FY14/15. Mapletree Commercial Trust has also been growing its NPI margins as well.

The trust is launching an asset enhancement initiative (AEI) for VivoCity which will begin in the third quarter of FY14/15 and is estimated to be completed by 30 September 2015. We have to continue to observe if the REIT’s AEI is able to bring about growth in revenue and NPI. Meanwhile, the management of Mapletree Commercial Trust expects the retail market and office rental market to be challenging in the coming years.

As of 31 December 2014’s closing price of $1.41, Mapletree Commercial Trust traded at a price-to-book ratio of around 1.2, and has a dividend yield of around 5.5%.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chin Hui Leong doesn’t own shares in any companies mentioned.