Introduction to Mapletree Pan Asia Commercial Trust

Mapletree Pan Asia Commercial Trust (MPACT) is a leading player in the real estate sector, investing in income-producing office and retail properties across key gateway markets in Asia. Since debuting on the SGX Main Board in 2011, the company has consistently focused on delivering shareholder value. Its merger with Mapletree North Asia Commercial Trust in July 2022 has further cemented its position in the region.

Key Investment Metrics

• Stock Recommendation: BUY (Maintained)
• Share Price: S\$1.20
• Target Price: S\$1.60 (Upside of 33.3%)
• FY25 NAV/Share: S\$1.73
• FY25 Net Debt/Share: S\$1.13
• FY26 Distribution Yield: 7.0%
• Price/Net Asset Value: 0.69x

3QFY25 Results Overview

MPACT reported mixed results for 3QFY25, with its Singapore portfolio providing a strong foundation amidst challenges from overseas markets. The company’s distributable income for the quarter was S\$104.7 million, a decline of 9.2% year-on-year (yoy). Gross revenue fell 7.4% yoy to S\$223.7 million, and Net Property Income (NPI) decreased 8.5% yoy to S\$166.9 million. Distribution per Unit (DPU) came in at 2.00 S cents, down 9.1% yoy, which was slightly below expectations.

Singapore Portfolio: A Pillar of Strength

The Singapore portfolio demonstrated resilience, with VivoCity and Mapletree Business City (MBC) leading the way:

• VivoCity: The retail giant saw NPI growth of 1.4% yoy and positive rental reversion of 16.9%. Occupancy remained high at 99.9%. Asset Enhancement Initiatives (AEI) at Basement 2 are progressing well, with the number of food kiosks increasing from 21 to 24 and retail Net Lettable Area (NLA) expanding by 14,000 square feet. The AEI is expected to complete by end-2025, delivering an ROI of 10%.
• Mapletree Business City (MBC): Occupancy levels remained stable, and an anchor tenant from the banking sector has renewed its lease.

Hong Kong Portfolio: Negative Trends Persist

The Festival Walk property in Hong Kong continues to face challenges:

• NPI dropped 7.5% yoy, with occupancy edging up slightly by 0.7 percentage points quarter-on-quarter (qoq) to 97.1%.
• Challenges include weak consumer spending, high interest rates, and competitive cross-border consumption in Shenzhen. The strong HKD has further exacerbated these issues.
• MPACT has intensified marketing efforts, such as celebrity events and themed experiences, to drive footfall. Tenant sales decline moderated to -1.5% yoy in 3QFY25 compared to -12.5% yoy in 2QFY25.

Japan Portfolio: Sharp Decline in Occupancy

The Japan portfolio reported a significant 31.6% yoy drop in NPI. Occupancy fell by 14.8 percentage points yoy to 82.6%, primarily due to the non-renewal of leases at Makuhari Bay Tower and Fujitsu Makuhari Building. MPACT expects further occupancy declines to 74% by 1QFY27, reflecting continued pressure in the Makuhari sub-market.

Management is actively exploring options such as re-letting, potential changes in use (subject to government approval), and potential divestment opportunities.

China Portfolio: Rising Competition and Declining Rents

MPACT’s properties in China are under pressure from elevated vacancy rates and declining rents:

• Beijing offices experienced a 10.7% decline in average rents in 2024, with vacancy rates at 21%.
• Shanghai business parks saw a 4.9% drop in rents, with vacancy rates at 23.6%. Sandhill Plaza, in particular, faced intense competition, with occupancy decreasing by 2.8 percentage points qoq to 84.3%.
• Negative rental reversion could worsen further, following a -2.9% decline incurred in 9MFY25.

Resilient Balance Sheet

MPACT’s financial position remains robust, supported by strategic deleveraging:

• Aggregate leverage decreased by 2.6 percentage points yoy to 38.2% as of December 2024.
• The adjusted interest coverage ratio is healthy at 2.8x, with an average all-in cost of debt stable at 3.52% for 9MFY25.
• The debt maturity profile is well-staggered, with no single year accounting for more than 23% of debt refinancing requirements.

Valuation and Recommendation

MPACT’s target price has been adjusted to S\$1.60, reflecting an increased risk-free rate assumption of 3.00% (previously 2.75%). The valuation is based on the Dividend Discount Model (DDM), with a cost of equity of 7.0% and a terminal growth rate of 2.0%.

The recommendation remains a firm BUY, supported by the company’s strong Singapore portfolio and growth potential from initiatives such as the development of Greater Southern Waterfront and rejuvenation of Sentosa Island.

Key Catalysts for Share Price Growth

• Resilient performance from VivoCity and MBC in Singapore.
• Development of properties in the HarbourFront area, which account for 49% of MPACT’s portfolio valuation.
• Potential benefits from the expansion of Resorts World Sentosa and the Greater Southern Waterfront development.