It has been a long road for unitholders of both Mapletree Commercial Trust and Mapletree North Asia Commercial Trust.
Back in January, these two REITs announced a merger that will create a new mega-REIT, Mapletree Pan Asia Commercial Trust (SGX: N2IU), or MPACT.
With the merger completed, MPACT has now released its maiden set of earnings for fiscal 2023’s first half ending 30 September 2022 (1H2023).
The enlarged REIT now owns 18 retail and commercial properties across five countries – Singapore, Hong Kong, China, Japan, and South Korea, valued at S$17.1 billion as of 31 March 2022.
Let’s take a look at these seven aspects of MPACT’s first full set of earnings.
1. Higher revenue and DPU
For 1H2023, gross revenue shot up 44.9% year on year to S$353.2 million due to the REIT’s enlarged portfolio post-merger.
Net property income rose by the same quantum to S$275.2 million.
Distribution per unit (DPU) climbed 12.5% year on year from S$0.0439 to S$0.0494.
Taking 1H2023’s annualised DPU of S$0.0878, units of MPACT provide a forward distribution yield of 5.3%.
2. Healthy operating metrics
Committed occupancy for the portfolio stood at 96.9%, with key shopping malls VivoCity and Festival Walk posting occupancies of 99.6% and 99.9%, respectively.
Meanwhile, the rental reversion was slightly positive at 1.1% for the portfolio.
The bulk of MPACT’s properties posted positive rental reversion except for Festival Walk which posted a negative reversion of 11.5%, thus dragging down the overall rental increase for the portfolio.
The tenant retention rate stayed healthy at 70.4%.
3. Moderate gearing with buffers in place
Gearing came in at 40.1% for the REIT as of 30 September, up sharply from the 33.8% three months ago, primarily due to the effects of the merger.
On the other hand, MPACT did maintain a low cost of debt at 2.44% with 72.5% of its debt locked in fixed rates.
The interest cover ratio also remained healthy at 4.4 times.
Speaking of interest rates, MPACT has disclosed that every 0.5 percentage point increase in base rates will reduce DPU by S$0.0016 per annum.
Based on the annualised DPU of S$0.0878 and an interest rate rise of 2.25%, this translates to an 8.2% decline in the annual DPU.
4. A good spread of tenants
MPACT also boasts a diverse set of tenants, with the largest tenant, Google Asia Pacific, taking up just 5.8% of gross rental income (GRI).
In total, the top 10 tenants made up 22.6% of GRI.
The portfolio also contains a diverse trade mix with different sectors, thus protecting the REIT from weakness in any one industry.
IT services and consultancy take up the largest proportion of GRI at 14.4% while the food and beverage sector comes in second at 12.9%.
5. A tale of two cities
There were contrasting fortunes at MPACT’s two crown jewel malls, VivoCity and Festival Walk.
The former saw tenant sales surge by 48.4% year on year to S$502.9 million with tenant sales now 13.2% higher than the corresponding period pre-COVID.
Shopper traffic was also up by 49.4% year on year at 18.9 million but is still lagging the mall’s pre-pandemic level of 27.1 million.
Festival Walk, on the other hand, continued to suffer from Hong Kong’s strict COVID protocols.
Shopper traffic dipped by 0.7% year on year for 1H2023 while tenant sales slipped by 0.5% year on year to HKD 1.86 billion.
Tenant sales for the Hong Kong mall remained below the pre-riot and pre-pandemic levels of HKD 2.59 billion for 1H2019.
6. Asset enhancement at VivoCity
Management is undertaking an asset enhancement initiative (AEI) for VivoCity to reconfigure 80,000 square feet of space.
The AEI will include the conversion of a portion of level one into a new retail zone.
MPACT sees this as an opportunity to introduce new food and beverage and lifestyle offerings.
The majority of the new zone has been committed and will progressively open from mid-2023.
The entire AEI exercise is projected to deliver a return on investment of 10% based on a capital investment of S$13 million.
7. A switch to quarterly reporting and DPU
To close, there’s good news for income-seeking investors.
MPACT has announced that it will adopt a quarterly reporting framework and also distribute quarterly DPU beginning from 3Q2023 for the period ending 31 December 2022.
Previously, Mapletree Commercial Trust only paid out half-yearly distributions.
Not sure which REIT to put your money in? Use our 7-step REIT checklist to find one that fits into your retirement plan. Checklist is inside our latest FREE report “Singapore REITs Retirement Plan”. Click here to download it now.
Disclaimer: Royston Yang does not own shares in any of the companies mentioned.