Latest Earnings from Mapletree Greater China Commercial Trust: Strong Growth Seen

Yesterday evening, Mapletree Greater China Commercial Trust (SGX: RW0U) released its fourth-quarter and full-year results for its fiscal year ended 31 March 2016 (FY15/16).

Mapletree Greater China Commercial Trust, or MGCCT for short, is a real estate investment trust with properties in China and Hong Kong. It currently has three properties in its portfolio, namely, Festival Walk (a retail and office building in Hong Kong), Gateway Plaza (a Grade-A commercial development in Beijing), and Sandhill Plaza (a business park property in Shanghai).

With that, let’s look at how the REIT has performed.

Financial highlights

The following’s a quick summary of some of the latest financial figures for MGCCT:

  1. Gross revenue for the quarter came in at S$87.8 million, up 15.2% year-on-year. Similarly, revenue was up 19.7% for FY15/16, clocking in at S$336.6 million. MGCCT had benefitted from the June 2015 acquisition of Sandhill Plaza, rental uplifts in its other two properties, and favourable currency swings.
  2. Net property income (NPI) followed suit, rising by 17.3% to S$17.3 million for the quarter and 21% to S$277.5 million for the year.
  3. The REIT’s bottom-line also showed strong growth. Distributable income had increased by 12.3% to S$200 million for FY15/16. For the reporting quarter, the selfsame metric had climbed by 11.9% to S$53.0 million.
  4. This resulted in an increase in MGCCT’s distribution per unit (DPU) as well; DPU for the year grew 10.8% to 7.248 Singapore cents while the DPU for the reporting quarter was up 10.4% to 1.923 Singapore cents.
  5. MGCCT’s net asset value (NAV) per unit also increased by 3.4% from S$1.198 a year ago to S$1.239.

Let’s move on to look at the REIT’s debt profile now:

MGCCT balance sheet (28 April 2016)
Source: Mapletree Greater China Commercial Trust earnings presentations

From the table above it can be seen that the REIT’s balance sheet has weakened somewhat over the past year. Net debt had climbed, which led to a higher gearing ratio. Also, there was an increase in funding costs, a lower interest cover, and  a reduction in fixed rate borrowings. The only positive was the longer debt maturity.

Operational highlights

MGCCT ended FY15/16 with an overall portfolio occupancy rate of 98.6%, largely unchanged from the previous year’s 98.8%.

The REIT also had a weighted average lease term to expiry (WALE) of about 2.6 years by gross rental income. Approximately 29.3% of its leases are up for renewal in the coming year. In the fourth-quarter of FY15/16, MGCCT reported that its Festival Walk and Gateway Plaza properties had experienced strong rental uplifts of 37% and 25%, respectively.

A drawback here is that the retail component of Festival Walk had seen its tenant sales and footfall decline in FY15/16. The former had fallen by 5.3% to HK$5.3 billion compared to the previous year while the latter had slipped by 3.3% to 40.4 million, again with reference to FY14/15.

The REIT’s manager also mentioned in the earnings release that asset enhancement works for Gateway Plaza was completed during the quarter. There was an addition of 800 square metres of space for food & beverage outlets.

A future outlook

In the REIT’s earnings release, it commented that total retail sales in Hong Kong had declined by 13.6% in value in the first two months of 2016 as a result of lower Chinese tourist arrivals and a shift in behaviour amongst Chinese consumers who are increasingly shopping more overseas and online. But, MGCCT added:

“Despite the headwinds affecting the overall retail market, shopping malls and stores, including Festival Walk, that offer mass-market to mid-tier brands are expected to remain relatively resilient, as they are supported by steady demand from the domestic shoppers who continue to be the mainstay for these malls.”

As for China, MGCCT cautioned that although vacancy rates in Beijing’s offices are currently low at just 3.6%, it is “expected to increase slightly as a result of new office supply.” There’s brighter news elsewhere in China. MGCCT said:

“In Shanghai, the government’s plans to further develop the Shanghai Free Trade Zones (such as the Zhangjiang Hi-Tech Park where Sandhill Plaza is located) into a national science and technology centre, as well as a centre for innovation, are expected to drive an increase in demand for business park properties in Shanghai.”

MGCCT last traded at $0.99 on Wednesday. This translates to a price-to-book ratio of 0.8 and a distribution yield of 7.3%.

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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 Esjay does not own shares in any companies mentioned.