12 things I learned from Mapletree Commercial Trust’s 2016 AGM

Many people are familiar with Sentosa and the shopping mall that links directly with the island resort – VivoCity. The mall is the largest in Singapore and enjoys a huge amount of shopper traffic from Singaporeans and tourists alike.

Mapletree Commercial Trust (SGX: N2IU) (MCT) is the REIT that owns VivoCity along with three office properties located in and around Singapore’s central business district. MCT is one of the better-performing REITs in my stock portfolio and I attended its annual general meeting to find out how the management plans to maintain MCT’s growth in the year ahead.

Here are 12 things I learned from Mapletree Commercial Trust’s FY2016 AGM:

  • Gross revenue increased 1.9% year-on-year to $287.8 million. VivoCity was the main contributor accounting for 66.4% of gross revenue. Net property income (NPI) increased 4.4% to $220.7 million year-on-year respectively. Again, VivoCity was the main driver – NPI contribution from the mall rose 7% year-on-year and accounted for 65.9% of total NPI.
  • The growth in NPI was also due to a 5.3% drop in operating expenses year-on-year. MCT achieved this by improving operational efficiencies and reducing energy consumption. This is seen in the BCA green building ratings achieved by MCT’s properties: Mapletree Anson is certified Green Mark Platinum, PAS Building is Green Mark Gold Plus while VivoCity and Merril Lynch HarbourFront are both Green Mark Gold.
  • Distributable income and distribution per unit (DPU) increased 2.5% and 1.6% respectively. DPU has grown from 5.27 cents in 2012 to 8.13 cents in 2016 – a CAGR of 9.5% over the last four years. MCT’s current yield as at 1 August 2016 (based on FY2016 DPU) is 5.3%.
  • Portfolio valuation increased 3.4% to $4.34 billion driven by higher valuations in VivoCity and PSA Building. Net asset value (NAV) per share likewise increased from 4.8% from $1.24 to $1.30. At its current share price of $1.53 (as at 3 August 2016), MCT is trading above its NAV per share.
  • MCT overall portfolio occupancy rate (as at 31 March 2016) is 96.6%. VivoCity’s occupancy rate is 99.6%. No surprise considering the mall saw 53.2 million in annual shopper traffic and annual tenant sales increased 3.3% to $939.2 million. MCT also saw positive rental reversions for its retail and office spaces of 12.3% and 8.1% respectively.
  • Overall weighted average lease expiry (WALE) is 2.2 years. Retail WALE is 2.0 years while office WALE increased from 2.8 years to 3.5 years after the management stepped in to renew Bank of America Merril Lynch’s lease at Merril Lynch HabourFront amid a weakening office sector.
  • The gearing ratio fell from 36.4% to 35.1% year-on-year. This is significantly below the 45% allowed by regulations. 73.8% of debt have fixed interest rates and the average term to maturity of debt is 3.4 years. Moving forward, MCT only has 12%, 3% and 3% of debt expiring in the next three years respectively. However, a huge chunk of debt (29%) is due for maturity in FY2020.
  • CEO Sharon Lim highlighted the proposed acquisition of Mapletree Business City for $1.78 billion. The proposed acquisition was discussed at the EGM that immediately followed the AGM. You can read more about Mapletree Commercial’s 2016 EGM.
  • A unitholder asked besides the current asset enhancement initiatives (AEIs) being done at VivoCity if the management considered the option of building another floor of retail space at the third level of the mall. He noted that top floor of the mall is in the open air and underutilized in Singapore’s hot and humid climate. The CEO replied that the gross floor area at VivoCity is already maxed out under URA rules and the management cannot build another area of retail space on the top floor. What can be done instead is to improve the net lettable area (NLA) in the mall by swapping retail spaces from lower yielding areas to higher yielding ones.
  • Another unitholder then followed up and asked if AEIs or growth at VivoCity have been maxed out. The CEO answered that there is no end to the AEIs that can be made – amalgamation of space can be done and NLA can be increased. She added that positive rental reversions and lower expenses can also drive NPI growth.
  • A unitholder queried if the renewal of Merrill Lynch’s lease at Merrill Lynch HabourFront had a positive rental reversion. The CEO confirmed that it was the case and the lease was extended for a further six years. The compromise is that MCT has to take back one entire floor of the building (46,000 square feet) in 2017. The deal was done because the management wanted to extend Merrill Lynch’s lease and leapfrog the heavy supply of office space coming on-stream. Another unitholder asked if the release of an entire floor would affect the property’s occupancy levels. The CEO said that it would but they still have six months to find new tenants. She also shared that the REIT overall manages 2.1 million square feet of space and leasing 46,000 square feet is part and parcel of normal operations.
  • A unitholder asked if MCT’s mandate was to only invest in Singapore and whether the REIT had a right of first offer for foreign properties from its sponsor, Mapletree. Chairman Tsang Yam Pui replied that MCT remains focused on Singapore and believes that there is still plenty of growth in its portfolio. The management could consider a foreign property if it fits the criteria but there are no plans to go overseas as of now. Another unitholder later shared that he would be unhappy if MCT were to venture overseas as the REIT has a track record of success by being focused on Singapore. If an investor wanted to diversify overseas, he could just invest in another instrument with foreign exposure.

Read more: 9 things I learned from Mapletree Commercial Trust’s 2016 EGM

(Photo: Mapletree Commercial Trust)

Adam Wong is the editor-in-chief of The Fifth Person and author of the national bestseller Lucky Bastard! which made the Sunday Times Top 10 Bestseller’s List in 2009 and Value Investing Made Easy which made the Kinokuniya Business Bestseller’s List in 2013. In 2010, he appeared on U.S. national television on the morning show The Balancing Act. An avid investor himself, Adam shares his personal thoughts and opinions as he journals his investing journey online.

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