What Does the Future Hold for Mapletree Greater China Commercial Trust? Part 1

Mapletree Greater China Commercial Trust  (SGX: RW0U), or MGCCT for short, has outperformed the market in the short period since its initial public offering (IPO).

The REIT got listed on 7 March 2013 and since then, its units have recorded price gains of 8.6% up till their closing price last Friday.

By comparison, the capital gains of the SPDR STI ETF (SGX: ES3) – a proxy for the Straits Times Index (SGX: ^STI) – was relatively unchanged during the same period.

MGCCT is a real estate investment trust (REIT) that focuses on commercial properties with strong retail elements (more on that later) and has an investment mandate in Hong Kong, first tier cities in China, and key second tier cities in the same country.

The REIT’s initial portfolio at its listing consists of just two properties: Festive Walk in Hong Kong and Gateway Plaza in Beijing, China.

Being a shareholder of a REIT gives you partial ownership to all the real estate that it owns. As per the Monetary Authority of Singapore (MAS), REITs are mandated to distribute at least 90% of its profits as dividends to enjoy tax transparency. I also wrote about a few pointers for picking REITs here.

Between its IPO and last Friday, MGCCT has given out steady distributions per unit (DPU) totaling more than 11 cents per share.

Quarter DPU (Singapore cents)
Q1-FY13/14* 1.7337
Q2-FY13/14 1.4550
Q3-FY13/14 1.5180
Q4-FY13/14 1.5870
Q1-FY14/15 1.5600
Q2-FY14/15 1.6060
Q3-FY14/15 1.6220

Source: MGCCT’s Earnings Presentation; Q1-FY13/14 covers 7 March to 30 June 2013

Although the returns from MGCCT have been nice, as Foolish investors, we should look behind the curtains to understand how the REIT can grow and how sustainable its distributions are.

A closer look

To get a sense of the resilience of MGCCT’s property portfolio, we can look at the gross revenue of each of its properties.

mapletree mgcct - 1

Source: MGCCT’s Earnings Presentation; author’s calculation

For the third quarter of the financial year that began on 1 April 2014 (Q3-FY14/15), Festive Walk made up 73.5% of MGCCT’s total gross revenue.

Comparing Q3-FY14/15 with the same period a year ago, gross revenue at Festive Walk is up 9.5% while Gateway Plaza’s gross revenue expanded by 20.4%.

Let’s look at the gross revenue by segment as well.

mapletree mgcct - 2

Source: MGCCT’s Earnings Report

Although the name for MGCCT suggests that most of its properties are for commercial use, it’s actually the retail segment which currently dominates the REIT’s gross revenue. This segment makes up nearly two-thirds of total gross revenue at the moment.

For Q3-FY14/15, the retail segment grew its gross revenue by 9.3% compared to a year ago while the office segment’s gross revenue expanded by 18%.

At the moment, MGCCT will have to rely on organic growth and asset enhancement initiatives to grow its gross revenue. For future growth, MGCCT’s Manager could also possibly look toward Mapletree Investments Pte Ltd’s pipeline of projects; Mapletree Investments is the sponsor of the REIT.

Foolish summary

The exercise above is to look at the sales dynamics of MGCCT. As a next step, we should observe if the REIT’s top-line growth would trickle down to the bottom-line so that it can sustain its distributions and unit price.

But, that’s for the next article.

MGCCT last traded at S$1.01 last Friday. This translates to a historical price-to-book ratio of 0.95 and a trailing 12 months distribution yield of around 6.3%.

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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.