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Mapletree Commercial Trust’s Latest Earnings: Headwinds Emerge

Mapletree Commercial Trust  (SGX: N2IU) released its fiscal first-quarter earnings report yesterday evening. The reporting period was from 1 April 2015 to 30 June 2015.

Mapletree Commercial Trust is a Singapore-focused real estate investment trust (REIT). At the local front, the REIT has ownership of Singapore’s largest mall, VivoCity as well as the PSA Building, Bank of America Merrill Lynch HarbourFront (MLHF) and Mapletree Anson.

You can learn more about the REIT in here and here and catch up with its previous quarter’s earnings here.

Financial highlights

Here’s a rundown on the latest financial figures from Mapletree Commercial Trust:

  1. Gross revenue for the reporting quarter inched up by 1.6% from the same quarter a year ago to $69.7 million. The main driver behind the top-line growth was a 3.8% increase in gross revenue from VivoCity which was offset by lower revenue from PSA Building and Mapletree Anson.
  2. Net property income (NPI) rose by a healthier 5%. NPI came in at $54.2 million, compared to $51.7 million for the same quarter a year ago. The REIT’s Manager credited its focus on cost control, which resulted in a 9% decline in property operating expenses, for the stronger NPI performance.
  3. Distribution per unit (DPU) for the reporting quarter was 2.01 cents, a 3.1% bump up from the 1.95 cents seen in the first-quarter of the last fiscal year.
  4. The value of Mapletree Commercial Trust’s investment properties currently stand at $4.2 billion and the REIT had an adjusted net asset value per unit of $1.24, up 6.9% from a year ago.

Beyond these, Foolish investors might also want to keep an eye on the REIT’s debt profile. The debt profile may provide clues on how the REIT is funded and its sensitivity to the interest rate environment. These are summarized for Mapletree Commercial Trust below.

2015-07 Mapletree Commercial Debt Table

Source: Mapletree Commercial Trust’s earnings presentation

The REIT’s average weighted debt maturity rose to 4.1 years in the reporting quarter resulting from the refinancing of borrowings with longer tenor debt. But, the weighted average all-in interest cost of debt rose to 2.41% as a result. Other than that, there hasn’t been much major changes with the REIT’s debt profile over the past three months.

The next refinancing hurdle for Mapletree Commercial Trust will be the $354 million in bank debt which comes due in the financial year ending 31 March 2017 (FY16/17). The progress in the REIT’s refinancing of its debt is where Foolish investors should keep a watchful eye on.

Operational highlights

Mapletree Commercial Trust ended the reporting quarter with a lower overall portfolio occupancy rate of 95.5% when compared to the selfsame figure of 99% seen at end-June 2014.

This development follows what my colleague Stanley Lim mentioned in his previous summary on looming competitors:

“The REIT cited studies done by research firm CBRE which shows that “office rental growth may have run its course and is likely to remain fairly flat.” In addition, the REIT also warned about the possibility of future competition from new developments which are coming online towards the end of 2016.”

In particular, occupancy at the PSA building and Mapletree Anson was weaker within the portfolio at 91% and 87.5% respectively, resulting in lower gross revenue from both properties. The near term outlook remains bleak, as the REIT cited CBRE’s expectations for downward pressures in retail rental for the next six to 12 months.

Along with this, the REIT had a weighted average lease term to expiry of about 2.2 years. Elsewhere, shopper traffic at VivoCity decreased by 6.7% year over year for the first quarter of FY15/16. This trend is worth watching as weak tourist arrivals may hamper the REIT’s growth.

Summing up the quarter, Amy Ng, Chief Executive Officer of the manager for Mapletree Commercial Trust, had this to add:

“For the first quarter of FY15/16, we delivered a healthy 3.1% DPU growth, driven by a 5.0% year-on-year portfolio NPI growth. Our relentless focus on cost management and improving operational efficiencies yielded good results and continued to contribute to the bottom line with operating expenses coming in at 9.0% lower than the same period last year.

We have closed this quarter with a more robust balance sheet having extended the average debt term to maturity to 4.1 years, compared to 3.3 years a year ago. While interest cost inched up in the quarter, the increase was well managed on the back of a much higher corresponding increase in benchmark rates since December 2014.”

Foolish summary

Mapletree Commercial Trust last traded at S$1.44 on Thursday. This translates to a historical price-to-book ratio of 1.28 and a distribution yield of around 5.6%.

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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.