Is Mapletree Commercial Trust (SGX: N2IU) Still An Attractive REIT To Buy?
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Is Mapletree Commercial Trust (SGX: N2IU) Still An Attractive REIT To Buy?

Sudhan P
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In 2019, Mapletree Commercial Trust (SGX: N2IU) was one of the largest gainers among Singapore’s blue-chip stocks.

Mapletree Commercial Trust’s unit price surged around 45% to S$2.39 then. At the time of writing, its unit price is even higher at S$2.47.

Given the “ever-increasing” price, does Mapletree Commercial Trust still provide value for those looking to buy it right now?

The answer is not straightforward and can be subjective, but we can still get an idea by using our 10-step guide to pick the best Singapore REITs.

How to pick the best REITs

As a summary, here are the 10 steps I use to pick the best Singapore REITs:

  1. Growth in Gross Revenue and Net Property Income
  2. Growth in Distribution Per Unit
  3. Property Yield of Between 5% and 9%
  4. Gearing Ratio of Below 40%
  5. Interest Coverage Ratio of Above 5x
  6. Healthy Portfolio Occupancy Rate
  7. Positive Rental Reversions
  8. Presence of Growth Prospects
  9. Acceptable Price-to-Book Ratio
  10. Distribution Yield of Above 5%

Business Background

Before we dive into analysing Mapletree Commercial Trust, let’s take a quick look at what its business is about.

Mapletree Commercial Trust owns six office and retail assets in Singapore.

Those buildings are:

  1. VivoCity;
  2. Mapletree Business City (MBC) I;
  3. Mapletree Anson;
  4. Bank of America Merrill Lynch HarbourFront;
  5. PSA Building; and
  6. MBC II (acquired in November 2019).

Five of those properties are located in Singapore’s Greater Southern Waterfront (HarbourFront and Alexandra Precincts) area, while one is at the Central Business District (CBD).

Mapletree Commercial Trust asset locations
Source: Mapletree Commercial Trust investor presentation (2Q & 1H FY19/20)

Mapletree Commercial Trust is sponsored by Mapletree Investments Pte Ltd, a property giant headquartered in Singapore. As of 30 September 2019, Mapletree had a 34.3% stake in Mapletree Commercial Trust.

Mapletree is also the sponsor of a few other REITs listed in Singapore.

1. Gross Revenue and Net Property Income (NPI) Check

Check for: Increasing gross revenue and NPI

Mapletree Commercial REIT has a financial year that ends on 31 March each year.

The following table shows how the REIT’s gross revenue and NPI have grown from FY14/15 to FY18/19:

 FY14/15FY15/16FY16/17FY17/18FY18/19Compound Annual Growth Rate (CAGR)
Gross revenue
(S$' million)
282.5287.8377.7433.5443.912.0%
Net property income
(S$' million)
211.7220.7292.3338.8347.613.2%

Over the longer term, both metrics grew at a CAGR of 12.9% and 14.7%, respectively.

Mapletree Commercial Trust gross revenue and NPI growth since FY11-12
Source: Mapletree Commercial Trust investor presentation (2Q & 1H FY19/20)

Both gross revenue and NPI have climbed consistently each and every year, pointing to a powerful business.

Verdict: Pass

2. Distribution Per Unit (DPU) Check

Check for: Increasing DPU

Since FY11/12, Mapletree Commercial REIT’s DPU grew at a rate of 7.1% per annum.

Mapletree Commercial Trust DPU growth since FY11-12
Source: Mapletree Commercial Trust investor presentation (2Q & 1H FY19/20)

Even though DPU growth has slowed in the past five years (as seen in the table below), Mapletree Commercial REIT has still rewarded unitholders well.

 FY14/15FY15/16FY16/17FY17/18FY18/19CAGR
Distribution per unit (Singapore cents)
8.008.138.629.049.143.4%

Verdict: Pass

3. Property Yield Check 

Check for: Property yield of between 5% and 9%

For FY18/19, Mapletree Commercial REIT had an NPI of S$347.6 million and a portfolio value of S$7.04 billion. That translates to a property yield of 4.9%.

The property yield in FY18/19 fell from 5.1% in FY17/18. The decline was due to a faster increase in portfolio value of 5.3% than NPI increase of 2.6%.

I’m giving this criterion a pass since the property yield for FY18/19 just missed the mark due to an increase in the valuation of Mapletree Commercial REIT’s properties.

Verdict: Pass

4. Gearing Ratio Check

Check for: Gearing ratio below 40%

As of 30 September 2019, Mapletree Commercial REIT had a healthy gearing ratio (also known as aggregate leverage) of 31.7%.

What’s also commendable is that Mapletree Commercial REIT’s gearing ratio had been coming down from a high of 40.9% at end-March 2013.

Mapletree Commercial Trust gearing as of 30 Sept 2019
Source: Mapletree Commercial Trust investor presentation (2Q & 1H FY19/20)

Verdict: Pass

5. Interest Coverage Ratio Check

Check for: Interest coverage ratio above 5 times

Mapletree Commercial REIT’s interest coverage ratio was 4.5 times, as of 30 September 2019.

Mapletree Commercial Trust interest cover as of 30 Sept 2019
Source: Mapletree Commercial Trust investor presentation (2Q & 1H FY19/20)

Interest coverage ratio has been coming down from above 5x in previous years, which is not good in my opinion.

Verdict: Fail

6. Portfolio Occupancy Rate Check

Check for: Healthy portfolio occupancy rate

Mapletree Commercial REIT’s committed portfolio occupancy is high at 98.8%, with the actual occupancy at 96.1%.

Mapletree Commercial Trust occupancy rate as of 30 Sept 2019
Source: Mapletree Commercial Trust investor presentation (2Q & 1H FY19/20)

As of 31 August 2019, MBC II, the REIT’s latest acquisition, had a healthy committed occupancy rate of 99.4%. 

Verdict: Pass

7. Rental Reversion Check

Check for: Positive rental reversions

Mapletree Commercial REIT achieved a 5% portfolio rental reversion in its latest quarter.

Its retail portion saw a 6.8% increase in fixed rents while the office/business park buildings saw a slight 0.7% rise in fixed rents.

Verdict: Pass

8. Growth Prospects Check

Mapletree Commercial Trust has said that the MBC II acquisition is expected to increase its NPI, DPU and net asset value per unit. This is great news for shareholders.

There could also be spillover effects to VivoCity from the expansion of Resorts World Sentosa (RWS) nearby.

The RWS expansion will begin in phases with new experiences opening every year from 2020 to around 2025, the year the revamp is expected to be completed.

Mapletree Commercial Trust also has a pipeline of assets that it can acquire from its sponsor to grow over the longer term. One of the buildings is St James Power Station, which was in the news last year as it was chosen by Dyson to house its global headquarters.

Mapletree Commercial Trust ROFR properties
Source: Mapletree Commercial Trust investor presentation (2Q & 1H FY19/20)

Verdict: Pass

9. Price-to-Book Ratio Check

Check for: Acceptable price-to-book ratio 

At Mapletree Commercial Trust’s unit price of S$2.47, it is valued at a PB ratio of 1.5x. The latest valuation is the highest it has been in the last five years.

Over the past five years, its average PB ratio stood at 1.2x.

At 1.5 times its historical book value, Mapletree Commercial Trust looks very expensive to me right now.

Verdict: Fail

10. Distribution Yield Check

Check for: Distribution yield to be above 5% 

At Mapletree Commercial Trust’s unit price of S$2.47, it has a distribution yield of 3.8%, which is very low for my liking.

Verdict: Fail

The Final Verdict

Mapletree Commercial Trust has a final score of 7/10.

Mapletree Commercial Trust is a strong REIT overall. Some of the investment merits it has are:

  • Healthy growth in gross revenue, NPI, and DPU;
  • Strong sponsor in Mapletree;
  • High portfolio occupancy rate; and
  • Long runway for growth.

The positive aspects of Mapletree Commercial Trust also make it a pricey REIT at the moment as it looks like investors are willing to pay up for growth.

However, I’m not comfortable to pay such a high price for the REIT at the moment.

Therefore, I’m placing Mapletree Commercial Trust on my watchlist, and it’s something I’ll be closely watching in 2020

Would You Invest In Mapletree Commercial Trust?

Come discuss your thoughts and more in our Seedly Community under a page specifically dedicated to Mapletree Commercial Trust (SGX: N2IU). 

Disclaimer: The information provided by Seedly serves as an educational piece and is not intended to be personalised investment advice. ​Readers should always do their own due diligence and consider their financial goals before investing in any stock. 

About Sudhan P
It isn't fair competition when only one company in the world makes Monopoly. But I love investing in monopolies. Before joining the Seedly hood, I had the chance to co-author a Singapore-themed investment book – "Invest Lah! The Average Joe's Guide To Investing" – and work at The Motley Fool Singapore as an analyst.
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