Mapletree Commercial Trust’s Latest Earnings: Growth Seen, But Tough Times Are Ahead

Mapletree Commercial Trust (SGX: N2IU) is a real estate investment trust that owns retail and office assets. The REIT currently owns four properties in Singapore, including VivoCity, one of the largest shopping malls on our island nation.

Mapletree Commercial Trust had released its first-quarter results for its financial year ending 31 March 2017 (FY16/17) last evening. Let’s dig into it to better understand how the REIT performed.

Financial highlights

Here are some of the latest financial numbers from the REIT:

  • Gross revenue for the quarter came in at S$73.4 million, up 5.2% from S$62.7 million a year ago. This was on the back of higher revenue contributions from Vivocity, Mapletree Anson and PSA Building.
  • Net property income (NPI) increased by only 3.7 % to S$56.3 million because of faster growth in property operating expenses (10.5%).
  • Distributable income followed, rising 2.1% to S$43.4 million from S$42.5 million a year ago.
  • Consequently, the REIT’s distribution per unit (DPU) stepped up by 1% year-on-year to 2.03 Singapore cents.
  • The REIT ended its reporting quarter with a net asset value (NAV) per unit of S$1.29, up 4% from the S$1.24 seen a year ago.

Moving on, let’s look at Mapletree Commercial Trust’s debt profile:

  • The REIT saw its gearing ratio drop from 36.4% in the first-quarter of FY15/16 to 35%. The percentage of debt with fixed rates also improved from 70.6% to 77.9% over the same period.
  • But, the all-in cost of debt had stepped up from 2.41% to 2.73% and the interest coverage ratio had declined from 5.1 times to 4.8.

Business highlights

Mapletree Commercial Trust reported a portfolio-wide occupancy rate of 97.8% in the quarter, and that’s up from a rate of 95.5% a year ago. The weighted Average Lease Expiry (WALE) also improved, increasing from 2.2 years to 2.5 years.

The REIT also noted in the earnings release that it has obtained shareholders’ approval for the acquisition of Mapletree Business City (Phase 1).  The purchase consideration for the asset is S$1.78 billion and the REIT intends to raise the capital needed via debt and the issue of new units of itself.

The road ahead

Mapletree Commercial Trust had given some good commentary in its earnings release on the state of Singapore’s retail and commercial real estate markets. Here’s what it said:

 “According to CBRE, occupier demand in the retail market continued to remain weak as the market is undergoing structural changes.

More retailers were observed to exit the market and rightsizing their operations in Q2 2016. Prime rents in the Orchard Road and the Suburban sub-markets have continued to decline in Q2 2016 with quarter-on-quarter decline at 1.1% and 0.7% respectively, as more landlords have taken to forward renewals in a bid to maintain occupancy levels in their portfolio.

On the whole, challenges remain for the wider retail market as weak retail sales continue to be the main drag on demand as this is expected to persist in the medium term.

Global economic concerns continued to dampen Singapore’s business outlook which in turn affected the performance of the office market as it recorded a fourth consecutive quarter of negative absorption.

The increase in leasing activity observed in Q2 2016 was largely bolstered by “flight to quality” movement and occupiers taking advantage of attractive leasing terms for new developments. Such relocations were from older generation buildings and will result in some secondary vacancies.

Vacancy levels are expected to rise over the next six to nine months with the physical completions of several new developments. CBRE expects further rental declines as developers of new buildings have been proactive in structuring new pre-leasing deals as competition to secure tenants has intensified.

MCT’s [Mapletree Commercial Trust] existing properties are expected to remain resilient, supported by VivoCity’s healthy performance in a challenging wider retail market and manageable expiries in its office portfolio in the next 12 months.”

The REIT closed at a price of S$1.50 per unit last evening before the earnings were announced. This implies a price to book ratio of 1.16 given the latest book value.

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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.