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1 Key Reason Behind This REIT’s Total Returns of 185% Since its IPO

Mapletree Commercial Trust (SGX: N2IU) has produced total returns of 185.3% since its initial public offering (IPO) in April 2011 until 31 March 2019 (end of financial year 2018/2019 (FY18/19)). At the end of March this year, Mapletree Commercial Trust’s unit price stood at S$1.89 against its IPO price of S$0.88.

Source: Mapletree Commercial Trust FY18/19 earnings presentation

What could be the main reason behind this strong unitholder return? Knowing this can help investors make the right decisions when deciding to invest in real estate investment trusts (REITs).

Brief background on Mapletree Commercial Trust

Before we dive into the reason, let’s quickly find out what Mapletree Commercial Trust is all about. Mapletree Commercial Trust is a Singapore-focused REIT that owns five office and retail assets in total. Its portfolio consists of VivoCity, Mapletree Business City I (MBC I), PSA Building, Mapletree Anson and Bank of America Merrill Lynch HarbourFront (MLHF). The assets are valued at S$7.04 billion.

Strong financial performance

Its growth, combined with its financials, has been the key reason for its stellar performance. Since IPO, Mapletree Commercial Trust has grown its gross revenue, net property income (NPI), distributable income, distribution per unit (DPU), and net asset value (NAV) per unit on a consistent basis. Here are some highlights:

  1. Gross revenue grew from S$177.3 million in FY11/12 to S$443.9 million in FY18/19, delivering a compound annual growth rate (CAGR) of around 14%.
  2. NPI climbed from S$124.0 million in FY11/12 to S$347.6 million in FY18/19, translating to a CAGR of some 16%.
  3. Distributable income increased from S$98.2 million in FY11/12 to S$264.0 million in FY18/19, giving a CAGR of around 15%.
  4. DPU rose from 271 Singapore cents in FY11/12 to 9.14 Singapore cents in FY18/19, translating to a CAGR of some 8%.
  5. NAV per unit grew from S$0.954 at the end of March 2012 to S$1.60 at end March 2019, giving a CAGR of around 8%.

Even during the global financial crisis, VivoCity’s rental rates held up well, as seen in the IPO prospectus.Source: Mapletree Commercial Trust IPO prospectus (Note: Blue line shows URA office / retail rental index for central region and blue bars show the weighted average gross rental rates (S$ per square foot per month))

In 2008 to 2010, VivoCity’s rental rate improved despite the URA (Urban Redevelopment Authority) rental index falling. This points to the resiliency of VivoCity as an asset.

Therefore, robust growth in its financials has given rise to the impressive total unitholder returns.

A peek into the future

Can Mapletree Commercial Trust continue doing well in the future? I believe it has the potential to. Currently, the shopping mall is refurbishing the space vacated by Giant hypermarket and is bringing in new shops to attract shoppers. Furthermore, with the public library that just moved in, families would be inclined to spend more time at Singapore’s largest shopping mall. VivoCity could also see spillover effects from the expansion of Resorts World Sentosa (RWS) that will begin in 2020.

At its current unit price of S$1.95, Mapletree Commercial Trust has a price-to-book ratio of 1.2 and a distribution yield of 4.7%.

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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 Sudhan P doesn’t own shares in any companies mentioned.