I’ve always wanted to experience listening in on an earnings
call with a company’s management, and to be able to observe how analysts
question the company’s management on the specific operating metrics and the
outlook of the company. Last week, I attended Mapletree Commercial Trust’s 4th
quarter analyst briefing via webcast. I felt that it was an insightful
discussion as it provided a bit more colour on the performance and the outlook
of MCT’s assets, and the management had discussed further details that were not
present in the earnings presentation and financial statements.
Here’s a summary of the 7 things I’ve learnt:
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| Source: MCT 4Q Results Presentation |
1. Headline numbers were the increase in revenue and NPI by 12.6%
and 12.8% respectively, from 4Q‘18. This was mainly due to the increase in
contribution from the acquisition of MBC ll completed in 3Q 2019, offset by a
decrease in revenue from VivoCity, due rental rebates given to tenants as a
result of the Covid-19 circuit breaker measures.
2. Distribution per unit (DPU) fell by 60% to $0.91 for 4Q,
due to a 42.1 mil capital allowance claim and a 1.6 mil retention of capital
distribution. Management explained that the intention of claiming a capital
allowance against the distributable income was to reduce the distributable income,
which means that MCT would still comply with the rule that REITs must
distribute 90% of their distributable income, in order to enjoy tax
transparency. Management also mentioned that retaining this amount of cash was
a prudent move, as cash flow is paramount during this crisis. In the event that
the retained distribution is not utilised, MCT would pay out the amount as a
capital distribution to unitholders, which is tax exempt.
3. Operational metrics: Portfolio committed occupancy was maintained
at 98.7%. Questions were asked regarding the tenant profile of MCT, and whether
certain office tenants have been affected by Covid-19, in addition to retail
tenants. Management indicated that there are certain office tenants in the
tourism related sector who may be affected.
There was also interest in the new Covid-19 (temporary measures)
Bill passed by the government, and a question was raised regarding how many %
of tenants are expected to use the Bill. Overall, management expects c.10% of
tenants (by portfolio revenue) to apply to seek shelter under the Bill, mostly from the retail segment, and a small portion of the office tenants in the tourism sector as mentioned in the previous paragraph.
Regarding the number of tenants still open in VivoCity
currently, management responded that around 30%, or about 100 of the 350 tenants
are still in operation, but most would not be trading at normal levels.
A question was also asked regarding the percentage of
tourists numbers for the Vivocity’s shopper traffic. Management replied that
based on the survey done 2 years ago, tourist shopper traffic was about 20%,
but would be different today.
4. Tenant relief package: MCT has given tenants a total
relief package worth c.50 mil, which is equivalent to approximately 3.5 months
of rental. This 50 mil package also includes miscellaneous rebates such as
waivers for using the atrium space or car park rebates. Management shared that
MCT is the only REIT that that gave tenants visibility on the rental relief
measures up to July, hence it would not be a fair comparison to compare their
current value of the rental relief package against that of other REITs, as
other REITs have yet to announce their respective rental relief measures for June
or July.
As a follow up on the point about rental relief, MCT
indicated that the respective share of the total rental relief package worth
3.5 months of rental were 1.1 months from the government’s property tax rebates,
and about 2.5 months which is MCT’s contribution.
An analyst also asked whether the security deposits from
tenants were intact even with the rental rebates. Management replied that the
rental rebates were in the form of waived rents, hence the security deposits
are still intact.
5. Valuation issues: An analyst asked if the valuation of
properties were too optimistic, given that the portfolio valuation remained
flat at $8.9 billion, as there were no change in cap rates used. MCT’s NAV
stood at $1.75 as of March 2020. Management’s response was that the valuations
of the assets are done by independent valuers, and factors such as comparable
transactions and current and future rents are taken into account. Valuers are
taking the Covid-19 as a one-off thing, hence there is minimal impact on the
long term valuation.
6. Capital management: MCT has refinanced all term loans due
in FY ’20, with only a $160 mil MTN due in Aug 2020. Debt maturity profile is
well distributed, with no more than 17% due for refinancing in any financial year.
MCT has $321 mil of cash and undrawn committed facilities on hand, while. MCT’s
debt headroom increased to 1.5 billion, after MAS increased the gearing limit
for REITs to 50%. MCT’s relatively low gearing ratio of 33.3% means that it has
the ability to increase its debt if required.
7. Outlook: With regard to rental renewals, management noted
that 18.8% of leases are up for renewal in this FY, with 8.1% and 10.7% coming
from the retail and office segments respectively.
Overall, I felt that dialing in to the earnings call by the management was very insightful. It provided me with a better understanding of the key metrics that equity research analysts were looking out for, and I would definitely be attending more earnings calls in the future.
For the full transcript, I have included the link below:
If you're keen to learn more about REITs, I have written two posts here:
Note: As of time of writing, I have divested my position in MCT.
Disclaimer: This article is intended for informational and discussion purposes only, and do not constitute financial advice. When in doubt, please contact a licensed financial adviser.
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