With real estate investment trusts (REITs) offering attractive distributions of between 4.5% and 9%, they have understandably grown in popularity in the last few years. With that in mind, I want to analyse the property lineup of one of the largest REITs in Singapore, Mapletree Commercial Trust (SGX: N2IU), to understand if the REIT is a viable investment. Mapletree Commercial Trust, or MCT for short, is a Singapore-based REIT that was listed in 2011. Its initial portfolio consisted of VivoCity, PSA Building and Bank of America Merrill Lynch Harbourfront. Since then, the REIT has been able to grow its portfolio…
With real estate investment trusts (REITs) offering attractive distributions of between 4.5% and 9%, they have understandably grown in popularity in the last few years. With that in mind, I want to analyse the property lineup of one of the largest REITs in Singapore, Mapletree Commercial Trust (SGX: N2IU), to understand if the REIT is a viable investment.
Mapletree Commercial Trust, or MCT for short, is a Singapore-based REIT that was listed in 2011. Its initial portfolio consisted of VivoCity, PSA Building and Bank of America Merrill Lynch Harbourfront. Since then, the REIT has been able to grow its portfolio by acquiring Mapletree Anson in 2013 and Mapletree Business City I in 2016.
In this article, I will look at each property and discuss some of the important metrics that investors should know about them.
VivoCity is MCT’s anchor asset. It is Singapore’s largest shopping mall with over 1 million square feet of leasable area and is strategically located at the HarbourFront precinct, where it connects mainland Singapore to Sentosa. The property has a 99-year land tenure that expires in 2096. As of 31 March 2017, the Vivocity had a market valuation of S$2.7 billion.
Since MCT’s initial public offering (IPO) in 2012, shopper traffic and tenant sales in VivoCity have both increased steadily. Consequently, gross revenue from the property also saw consistent growth from S$135.1 million in FY11/12 to S$200.9 million in FY16/17 (MCT’s financial year ends on 31 March every year).
Mapletree Business City I (MBC I), MCT’s latest acquisition and second largest revenue contributor is an integrated office and business park located in the Alexandra precinct. It is considered a best-in-class asset and had gross revenue of S$74.8 million for FY16/17. The property has a strata lease title that expires in 2096 and is valued at S$1.85 billion.
PSA Building, the third largest contributor of MCT’s property income, is an integrated development with a 40-storey office building and a three-storey retail centre in the Alexandra precinct. PSA Building’s contribution of gross revenue has grown from S$27.8 million in FY12/13 to S$49.7 million in FY16/17. The property has a market valuation of S$735 million and sits on a leasehold land that expires in 2096.
Mapletree Anson is a Grade A office building in Tanjong Pagar. It achieved gross revenue of S$34.5 million and had a 100% occupancy rate in FY16/17. The property is valued at S$690 million and has leasehold expiring in 2106.
Bank of America Merrill Lynch HarbourFront, or BOAML, is the smallest asset in MCT’s portfolio. BOAML is a six-storey building with main tenant, Bank of America Merril Lynch, taking up the first five stories of the building. BOAML achieved gross revenue of S$17.9 million and is valued at S$318 million. It has a land lease expiring in 2096.
The Foolish conclusion
MCT, no doubt, has a strong lineup of properties that are all located in prime areas in Singapore. Furthermore, all of its properties have very long leases, which is a huge plus for the REIT as it does not have to worry about forking out more money to extend its land ownership.
Perhaps, the only concern that I have about MCT’s current lineup is its reliance on just two properties. VivoCity and MBC I make up the bulk of the revenue, contributing 73% of the total gross revenue.
However, all things considered, I still believe that MCT has one of the best line up of properties among the commercial REITs in Singapore. Each property has shown its ability to attract and retain tenants. At the same time, the manager of the trust has shown great foresight in using its capital to upgrade and rejuvenate the properties, and to acquire strategic assets when the opportunity presents itself.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. The Motley Fool Singapore has recommended units of Mapletree Commercial Trust. Motley Fool Singapore contributor Jeremy Chia doesn’t own shares in any companies mentioned.