Mapletree Greater China Commercial Trust’s Latest Earnings: Distributions Jump 8.7% With Nice Outlook Ahead

Mapletree Greater China Commercial Trust  (SGX: RW0U) released its first-quarter earnings report for its fiscal year ending 31 March 2016 (FY15/16) last Friday. The reporting period was from 1 April 2015 to 30 June 2015.

The real estate investment trust, which is better known as MGCCT, has an investment strategy of concentrating on commercial and retail properties in Hong Kong, first-tier cities in China, and key second-tier cities in the same country.

MGCCT’s initial portfolio during its listing comprised of Festival Walk in Hong Kong and Gateway Plaza in Beijing, China. On 17 June 2015, the REIT acquired Sandhill Plaza, a business park development in Zhangjiang Hi-Tech Park, Shanghai, to add to its portfolio.

You can learn more about the REIT in here and here.

Financial highlights

The following’s a quick take on MGCCT’s latest financial figures:

  1. Gross revenue rose to $75.9 million in the reporting quarter, up 19% compared to the same quarter a year ago.
  2. Net property income (NPI) rose by 18.7% year-on-year to $62.4 million as a result.
  3. The REIT’s distribution per unit (DPU) for the reporting quarter was 1.696 Singapore cents, an 8.7% increase from the 1.606 cents seen in the corresponding quarter a year ago.
  4. MGCCT’s investment properties are valued at $5.6 billion as of 30 June 2015 and it had an adjusted net asset value per unit of $1.145, down 4.4% from the previous quarter.

Beyond these, Foolish investors might also want to keep an eye 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 summarised for MGCCT below:

2015-08 MGCCT Debt Table

Source: MGCCT’ earnings presentation

MGCCT also reported that 86% of its loans are on a fixed interest basis. Furthermore, 63% of its forecasted distributable income for FY15/16 has been hedged for both the HK$ and the RMB.

During the reporting quarter, the REIT also entered into a four year term loan facility to fund the Sandhill Plaza acquisition. This pushed the gearing ratio for MGCCT to 41.2%, up from 36.2% as of end-March 2015. Foolish investors should note that the Monetary Association of Singapore will be capping  the leverage limit for REITs in Singapore at 45% in the future.

Elsewhere, investors may also want to observe MGCCT’s progress in refinancing its borrowings. Some HK$8.14 billion (or 59%) of the REIT’s total debt will be due on FY16/17 and FY17/18.

Operational highlights

During the reporting quarter, gross revenue and NPI for Festival Walk was up 15.7% and 14.6% year-on-year respectively. Gateway Plaza did even better with a 23.6% and 24.2% increase in gross revenue and NPI respectively.

Occupancy rates for both of the REIT’s older properties remained high at 100% for Festival Walk and 98.6% for Gateway Plaza; both occupancy levels were unchanged compared to a year ago. Meanwhile, Sandhill Plaza had an occupancy rate of 98.5% as of 30 June 2015, thus bringing MGCCT’s portfolio-wide occupancy level to 99%, down slightly from the 99.2% seen a year ago.

The REIT had also achieved an impressive 16% rental uplift for the retail spaces at Festival Walk and a selfsame figure of 29% for the office component at Gateway Plaza.

Investors might want to note that 64.7% of the REIT’s total leases by gross rental income will be expiring in FY16/17 and FY17/18; the renewal of the leases will be something to watch. The two fiscal years will be a busy time for MGCCT given that it also has to deal with the refinancing of a large chunk of its borrowings as mentioned earlier.

Cindy Chow, the chief executive of MGCCT’s Manager, had the following comments to make regarding the REIT’s reporting quarter:

“We are pleased to report a good set of results for 1Q FY15/16, which outperformed the same period last year. This is delivered through healthy rental reversions, strong leasing demand, high occupancy and efficient cost management across the portfolio. The acquisition of Sandhill Plaza, the first since the initial public offering of MGCCT, was completed on 17 June 2015, and is expected to contribute to the steady growth of the distributable income in subsequent quarters.

We will continue to maximise Unitholders’ returns through proactive asset and cost management, asset enhancement initiatives and yield-accretive acquisitions while maintaining an efficient capital management structure.”

Looking ahead, Festival Walk “is expected to continue to enjoy steady rental growth, supported by a low unemployment rate and stable domestic consumption in Hong Kong, barring any unforeseen events such as demonstration that may cause disruption to the traffic and economic activities in the business and shopping areas.”

Meanwhile, demand for commercial space in Gateway Plaza is also expected to receive support from businesses in a wide range of sectors in Beijing.

Sandhill Plaza is also thought to be able to enjoy some wind on its back as a result of a decentralization trend in Shanghai that is driven by “significant cost advantages, favourable tax incentives and increasingly convenient accessibility of business parks” for domestic and international companies in the key Chinese city.

Foolish summary

MGCCT last traded at S$0.98 last Friday. This translates to a historical price-to-book ratio of 0.85 and an annualised forward distribution yield of around 6.9%.

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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.