Singapore’s stock market benchmark, the Straits Times Index (SGX: ^STI), is made up of 30 component stocks. The 30 companies are reviewed every quarter to determine if any changes should be made. If any of the companies become ineligible to continue being part of the index, it would be replaced by those on the STI reserve list. The reserve list consists of the five highest-ranking non-constituent STI shares – by market capitalisation.
Here are the five benchwarmers, which are incidentally all real estate investment trusts (REITs), that are part of the reserve list (by order of market capitalisation):
- Mapletree Commercial Trust (SGX: N2IU);
- Mapletree Logistics Trust (SGX: M44U);
- Suntec Real Estate Investment Trust (SGX: T82U);
- Mapletree North Asia Commercial Trust (SGX: RW0U); and
- Keppel REIT (SGX: K71U).
Let’s have a closer look at a favourite of Singaporean investors and the top REIT on the list – Mapletree Commercial Trust.
Building the portfolio
The REIT’s portfolio consists of five buildings located in Singapore’s Alexandra Precinct, HarbourFront Precinct, and the Central Business District (CBD). Those five properties are VivoCity, Mapletree Business City I (MBC I), PSA Building, Mapletree Anson, and Bank of America Merrill Lynch HarbourFront (MLHF). As of 31 March 2019, the assets had a total valuation of S$7.04 billion, with VivoCity taking up the bulk of the portfolio with a S$3.20 billion valuation.
Show me the money
In the fiscal year that ended 31 March 2019 (FY18/19), Mapletree Commercial Trust’s gross revenue grew 2.4% to S$443.9 million primarily due to higher contribution from all properties except Mapletree Anson.
VivoCity’s revenue was 3% higher than the previous year at S$212.9 million. The growth was mainly on the back of higher rental income from new and renewed leases, effects of the step-up rents in existing leases, and higher other revenue. The increase came despite asset enhancement initiatives (AEIs) conducted during the year, which saw VivoCity opening a public library on Level 3. This shows the resiliency of the largest shopping mall in Singapore.
Overall net property income (NPI) rose 2.6% to S$347.6 million for the year largely due to the higher revenue. Income available for distribution climbed 1.4% to S$264.0 million while distribution per unit (DPU) grew 1.1% to an all-time high of 9.14 Singapore cents, up from 9.04 Singapore cents in FY17/18.
The following summarises the REIT’s latest performance:
Source: Mapletree Commercial Trust earnings presentation
It can also be seen that Mapletree Commercial Trust’s net asset value (NAV) per unit grew 7.4% to S$1.60 while its gearing level fell 1.4 percentage points to 33.1%. The growth in NAV per unit shows that the REIT’s manager is doing a great job in increasing unitholder value. The gearing ratio of 33.1% is a safe distance from the regulatory limit of 45%. If the REIT wants to gear up for acquisitions to grow further, it can do so easily.
What’s in store?
In its earnings release, Sharon Lim, chief executive of Mapletree Commercial Trust’s manager, commented the following about VivoCity’s prospects:
“Two quarters ago, we announced the replacement of VivoMart by Singapore’s leading grocer and multi-format retailer, NTUC FairPrice. We are excited that FairPrice has started fit-out works since 1 April 2019 for an integrated space of ~91,000 square feet. Specifically designed to cater to the varied needs of today’s shoppers, the new store comprises a FairPrice Xtra hypermarket, a Unity pharmacy and a Cheers convenience store. We can also look forward to the conversion of ~24,000 square feet of recovered anchor space on Level 1 and Basement 2. The space has been fully committed by Uniqlo, an existing tenant which is expanding, as well as new lifestyle and mid-range F&B offerings, and we expect the changes to further enhance VivoCity’s offerings and appeal as a major destination mall.”
The refurbishment works are scheduled for completion by the second quarter of FY19/20. Once the works are completed, VivoCity could see an uptick in its revenue, which would ultimately lead to a higher DPU for unitholders.
“Price is what you pay, value is what you get”
At Mapletree Commercial Trust’s closing unit price of S$2.03 on 10 June, it had a price-to-book (PB) ratio of 1.3 and a distribution yield of 4.5%. The PB ratio and distribution yield seem to be on the expensive side, so potential investors have to discern if it could be worth paying up for a strong REIT.
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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 and Mapletree Logistics Trust. Motley Fool Singapore contributor Sudhan P doesn’t own shares in any companies mentioned.