REIT reporting season is now in full swing.
Investors are dutifully scrutinising this latest round of financial and operating numbers to look for signs of weakness as the sector grapples with a mix of high inflation and soaring interest rates.
The Mapletree group of REITs is a popular investment choice for many income-seeking investors.
Mapletree Logistics Trust (SGX: M44U) reported a slight year on year increase in its distribution per unit (DPU) last week.
And just last week, Mapletree Industrial Trust (SGX: ME8U) announced high occupancy rates and a robust set of numbers for its latest earnings.
Now, the third and final REIT from the Mapletree stable, Mapletree Pan Asia Commercial Trust (SGX: N2IU), or MPACT, has reported its results.
Here are five highlights that investors may want to know more about.
A steady set of financial numbers
MPACT reported an encouraging set of numbers for its fiscal 2023’s third quarter (3Q2023).
Gross revenue jumped 84% year on year to S$239.7 million as the REIT recognised a full quarter of contribution from the newly-acquired assets from the MCT-MNACT merger.
Net property income (NPI) surged by 76.8% year on year to S$179.4 million.
DPU, however, remained flat at S$0.0242 for 3Q2023 as the number of issued units for MPACT increased from 3.3 billion in 3Q2022 to 5.2 billion in 3Q2023.
Finance costs were another culprit, nearly tripling year on year from S$17.7 million to S$50.3 million.
If we zoom out to the first nine months of fiscal 2023 (9M2023), gross revenue rose 58.5% year on year while NPI jumped 56% year on year.
DPU improved by 8.1% year on year in 9M2023 to S$0.0736.
If we compare the original assets of MPACT before the merger, revenue increased by 9.2% year on year to S$408.5 million while NPI improved by 8.7% year on year to S$316.6 million for 9M2023.
High occupancy and tenant retention
MPACT’s portfolio enjoyed a high committed occupancy of 95.5% as of 31 December 2022.
Furthermore, the REIT manager had just renewed the lease for the REIT’s second-largest tenant, BMW, at Gateway Plaza for five years till 2028.
The tenant retention rate remained healthy at 70.3%.
Rental reversion for the portfolio, however, came up slightly negative at -0.3%, with the main drag coming from Festival Walk in Hong Kong and MPACT’s China properties.
Otherwise, the REIT’s Singapore properties posted positive rental reversion ranging from 1.1% to 7.9% while its South Korean asset, The Pinnacle Gangnam, recorded a positive 14.2% rental reversion.
The cost of debt is slowly creeping up
Investors should be mindful that MPACT’s cost of debt is slowly creeping up in tandem with rising interest rates.
The weighted average all-in cost of debt was 2.39% as of 31 December 2021 and rose to 2.44% nine months later.
As of 3Q2023, it had risen further to 2.57%.
MPACT’s aggregate leverage stood at 40.2% with a trailing 12-month interest cover of 3.8 times.
With 78.3% of its debt on fixed rates, the REIT is relatively buffered against a short-term spike in interest costs.
Curating a healthy mix of retail stores
Meanwhile, the REIT manager has been hard at work curating a healthy mix of tenants for MPACT’s key Singapore property, VivoCity.
Some popular tenants include Bouncetopia by Kidztopia, White Restaurant, and The Shirt Bar.
The Christmas event organised last December was also supported by more than 150 retailers and attracted more than 24,000 attendees.
VivoCity is also undergoing an asset enhancement initiative (AEI) with the majority of the renovated space reopening in the middle of this year.
The AEI involves reconfiguring around 80,000 square feet of space, including the conversion of a part of level one’s anchor space into a new retail zone.
This AEI is expected to generate a return on investment of more than 10%.
Expect better numbers from Hong Kong
It was a different story for Festival Walk in Hong Kong as the mall reported weak numbers for 3Q2023.
Shopper traffic dipped by 0.7% year on year to 21.4 million for 9M2023 while tenant sales fell by 2.3% year on year to HK$2.9 billion.
Management attributed the weak numbers to outbound travelling in 3Q2023.
Similar to VivoCity, the manager is also curating the retail offerings within the mall to enhance the shopper experience and attract higher footfall.
Brands such as Five Guys burger restaurant, Charles & Keith, and GUCCI Timepieces and Jewelry were introduced to spruce up the offerings.
With China’s reopening, it’s also envisaged that MPACT should report better numbers for Festival Walk in 4Q2023 and beyond.
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Disclosure: Royston Yang owns shares of Mapletree Industrial Trust.