Comprehensive Analysis of Mapletree Pan Asia Commercial Trust (MPACT)

Broker: UOB Kay Hian

Date of Report: 27 January 2025

Company Overview

Mapletree Pan Asia Commercial Trust (MPACT) is a Singapore-based real estate investment trust (REIT) that invests in income-producing real estate for office and retail purposes across key gateway markets in Asia. The company has been listed on the SGX Mainboard since April 2011 and underwent a significant merger with Mapletree North Asia Commercial Trust in July 2022. MPACT’s portfolio spans Singapore, Hong Kong, China, Japan, and South Korea, providing investors with exposure to a diversified range of commercial properties.

Investment Recommendation

The recommendation for MPACT is to BUY, with a revised target price of S\$1.60, reflecting an upside potential of 33.3% from its current share price of S\$1.20. This recommendation is maintained despite headwinds faced by the trust’s overseas properties, as the Singapore portfolio has demonstrated strong performance and resilience.

Key Highlights of 3QFY25 Performance

Singapore Portfolio: A Stronghold of Stability and Growth

MPACT’s Singapore assets, particularly VivoCity and Mapletree Business City (MBC), remained robust in 3QFY25. VivoCity achieved a notable positive rental reversion of 16.9%, while maintaining an impressive occupancy rate of 99.9%. The ongoing asset enhancement initiative (AEI) at VivoCity’s Basement 2 is progressing smoothly, with completion expected by the end of 2025. The AEI aims to increase retail net lettable area (NLA) by 14,000 square feet and deliver a projected return on investment (ROI) of 10%.

MBC also exhibited resilience with stable occupancy, bolstered by the renewal of a key lease by an anchor tenant from the banking sector. These developments highlight the strength and potential of MPACT’s Singapore portfolio, which accounted for 53% of the trust’s portfolio valuation.

Hong Kong Portfolio: Challenges Persist

Festival Walk in Hong Kong continued to face challenges, with net property income (NPI) declining by 7.5% year-on-year (yoy) due to negative rental reversion of 7.2%. Despite this, occupancy edged slightly higher to 97.1%. The retail sector in Hong Kong remains under pressure due to weak consumer spending, elevated interest rates, and cross-border consumption in Shenzhen driven by a strong Hong Kong dollar. MPACT has intensified marketing efforts, such as high-profile celebrity events and themed experiences, to attract shoppers. The decline in tenant sales has moderated to -1.5% yoy in 3QFY25, compared to -12.5% yoy in 2QFY25.

China Portfolio: Rising Competition and Declining Rents

MPACT’s properties in China faced significant headwinds, with occupancy and rental rates coming under pressure. The average vacancy rate for Beijing offices remained high at 21%, while Shanghai business parks grappled with a vacancy rate of 23.6%. Sandhill Plaza, MPACT’s key asset in Shanghai, saw occupancy dip 2.8 percentage points quarter-on-quarter (qoq) to 84.3%, driven by non-renewals from multiple tenants. Negative rental reversion, which stood at -2.9% for 9MFY25, could worsen due to intense competition and flexible rent-free policies adopted by competitors.

Japan Portfolio: Ongoing Decline

In Japan, NPI declined sharply by 31.6% yoy in 3QFY25. The occupancy rate fell to 82.6%, a substantial drop of 14.8 percentage points yoy, primarily due to the non-renewal of leases at Makuhari Bay Tower. Fujitsu, a key tenant, has also announced its intention not to renew its lease upon its expiry in March 2026. Occupancy is expected to decline further to 74% in 1QFY27. MPACT is exploring options such as re-leasing, potential changes in property use, and divestment opportunities for its Japan portfolio.

Resilient Balance Sheet

MPACT’s financial position remains robust, supported by the divestment of Mapletree Anson. As of December 2024, aggregate leverage had declined to 38.2%, with an adjusted interest coverage ratio of 2.8x. The trust’s debt maturity profile is well-distributed, with no single year accounting for more than 23% of debt refinancing. The average all-in cost of debt was stable at 3.52% for 9MFY25, and management has guided a mid-3% cost of debt for FY25.

Key Financial Metrics

Valuation and Recommendation

The target price of S\$1.60 for MPACT is based on a discounted dividend model (DDM), assuming a cost of equity of 7.0% and a terminal growth rate of 2.0%. This valuation reflects the trust’s strong growth prospects in Singapore, supported by ongoing enhancements at VivoCity and the HarborFront area’s strategic developments, such as the Greater Southern Waterfront project.

Conclusion

While MPACT faces challenges in its overseas portfolio, its Singapore assets continue to deliver robust performance and resilience. The trust’s prudent financial management and strategic asset enhancements further strengthen its investment case. Investors are encouraged to maintain a long-term perspective and capitalize on the growth potential of this pan-Asian REIT.