Last week, Mapletree Commercial Trust (SGX: N2IU) released its fourth quarter and full year earnings update for its financial year ended 31 March 2018 (FY17/18).
As a quick introduction, Mapletree Commercial Trust is a REIT that owns five properties in Singapore including VivoCity, the largest retail mall in our Garden City. Since its listing, Mapletree Commercial Trust has racked up an impressive track record of consistently growing its distributions to unitholders. Let’s take a look at its latest results to see if it was able to continue its stellar record of growth.
The momentum builds
During the fourth quarter of FY17/18, the REIT recorded a 1.3% year-on-year increase in revenue to S$108.9 million, and a 1.2% increase in net property income (NPI) to S$84.3 million. Distributions per unit for the quarter also inched up by 0.4% to 2.27 cents per unit.
For the full year, gross revenue and NPI both posted double-digit growth. Gross revenue climbed 14.8% to S$433.5 million from S$377.7 million a year ago while NPI grew 15.9% to S$338.8 million from S$292.3 million. Consequently, Mapletree Commercial Trust’s distributions per unit for the year rose 4.9% to 9.04 Singapore cents.
The growth in the REIT’s revenue and NPI for the year were largely due to higher rental income from both new and renewed leases. This was achieved through step-up rental escalations, and new leases that came from the completed asset enhancement initiatives of VivoCity in basement 2, level 1, and level 2.
The REIT also recorded a 5.4% property revaluation gain. As of 31 March 2018, its portfolio had a total market value of S$6.68 billion, up from S$6.34 million the same time last year. Likewise, its net asset value per unit rose 8% to S$1.49 from S$1.38 a year ago.
Prudent debt management
As of 31 March 2018, Mapletree Commercial Trust had S$2.32 billion in debt, with total assets worth S$6.74 billion. This translates to a safe gearing ratio of 34.5%, well below the 45% regulatory cap implemented by the Monetary Authority of Singapore. It is also an improvement from the REIT’s gearing of 36.3% at the end of 2017. Mapletree Commercial Trust’s low gearing ratio also gives it debt-headroom to make yield-accretive acquisitions in the future.
Moreover, the REIT has a comfortable interest cover ratio of 4.8 times, a long average debt-to-maturity profile of 3.9 years, and a very reasonable all-in cost of debt of 2.75%. The REIT has a well-distributed debt maturity profile too, with only S$144 million of debt due in 2018.
Over the course of FY17/18, Mapletree Commercial Trust had managed to improve its occupancy rate from 97.9% on 31 March 2017, to 99.5% on 31 March 2018. The REIT also enjoyed a positive 0.6% rental reversion rate after adjusting for the one-off replacement tenant of a pre-terminated lease.
The REIT’s overall portfolio weighted average lease expiry (WALE) stood at 2.7 years at the end of FY17/18, with a well spread-out lease expiry profile. Only 12.6% of the REIT’s retail tenants, and 6.0% of office tenants, have leases expiring in FY18/19.
Another thing worth mentioning is that despite a 1.4% decrease in shopper traffic, VivoCity brought in record-high tenant sales of S$958.2 million, up 0.7% increase from FY156/17. I think this is a testament to the improving retail scene, and bodes well for the REIT’s future.
Developments at VivoCity
Mapletree Commercial Trust completed its enhancement works at VivoCity on level 1 and 2 in July 2017. Development works for the public library space on level 3, and the increase in gross floor area in basement 1, are on course for completion by the end of 2018. These asset enhancement initiatives will further increase the rental yield at VivoCity and should consequently be a key driver of distribution-growth for the REIT’s unitholders going forward.
What’s in store in the future
On the outlook for the rest of the year, the REIT’s Manager said that despite strong economic fundamentals such as tourist-arrival growth, increase in retail sales, and an improving job market, the rental recovery in the retail sector will remain selective and not be evenly felt across all malls.
However, Mapletree Commercial Trust’s Manager is more bullish on the office sector. They believe with the tapering of the supply of new offices, and improving business confidence in banking and professional services, the medium term outlook for office rents in Singapore is generally positive.
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