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Mapletree Commercial Trust: New Anchor Tenant in VivoCity Should Boost DPU Further

Mapletree Commercial Trust (SGX: N2IU) is a REIT that invests in properties used for office and/or retail purposes. MCT’s portfolio consists of five assets: VivoCity, Mapletree Business City I (MBC I), PSA Building, Mapletree Anson, and Bank of America Merrill Lynch Harbourfront. These assets have a total net lettable area of 3.9 million square feet and are valued at around S$7 billion.

MCT reported its Q1 2020 earnings recently (it has a 31 March fiscal year-end) and distribution per unit (DPU) saw healthy growth of 3.6%. All properties except for Mapletree Anson contributed to higher revenue, leading to a year-on-year rise of 3.3% in gross revenue to S$112.1 million. Operating expenses, however, rose by 5.2% year on year, which resulted in net property income (NPI) rising by a smaller 2.8% year on year. I believe DPU can continue to grow on the back of healthy retail footfall and the strength of VivoCity’s offerings.

New anchor tenant for Vivocity

VivoCity saw a change in its anchor tenant, with NTUC FairPrice Xtra soft launching its largest and most advanced store in Singapore. The new store features unique product offerings such as indoor farming (for freshly grown vegetables), live seafood displays, and also a specialty coffee corner. Note that NTUC replaces the previous anchor tenants Giant hypermarket and Cold Storage, which are brands operated by Dairy Farm International Holdings Ltd (SGX: D01).

The remaining anchor space was converted to house popular food and beverage offerings such as Penang Culture and Nahkon Kitchen, and these should contribute positively to gross revenue in Q2 2020 for the REIT. It was impressive to note that VivoCity achieved 5.2% and 4.2% growth in gross revenue and NPI in spite of the transitory downtime resulting from the anchor tenant changeover.

Portfolio metrics remain robust

MCT’s portfolio metrics remain robust, with overall committed occupancy at 98.9%. Mapletree Anson’s actual occupancy dipped temporarily from 96.8% in the previous quarter to 92.7%, but committed occupancy is already at 99%, and this will be reflected in subsequent quarters.

Portfolio rental reversion of 5.3% was achieved, and this was primarily driven by the retail portion of the portfolio. Aggregate leverage ratio was 33.1% as of 30 June 2019, allowing the REIT ample headroom to gear up for further acquisitions. With a cost of debt of just 3%, the REIT should be able to find accretive acquisitions to further boost DPU.

Retail will continue to power DPU

The retail portion of MCT’s portfolio will continue to power DPU growth over the next few quarters as the new anchor tenant commences operations at VivoCity. The mall continues to attract a good mix of both locals and tourists (being located close to Sentosa island), and Uniqlo’s expansion from the current 10,700 square feet of space to 19,000 square feet should be completed in September 2019 and will further add to gross revenue for the REIT.

At MCT’s last traded price of S$2.07, the REIT offers an annualised forward dividend yield of 4.5%.

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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 Royston Yang doesn’t own shares in any companies mentioned. The Motley Fool Singapore has recommended shares of Mapletree Commercial Trust and Dairy Farm International.