Date: 25 October 2024
Broker: OCBC Investment Research
Company Overview
Mapletree Pan Asia Commercial Trust (MPACT) is a real estate investment trust (REIT) listed on the Singapore Exchange. It offers investors exposure to a diversified portfolio of commercial properties across key gateway markets in Asia, including Singapore, China, Hong Kong, Japan, and South Korea. MPACT was originally listed as Mapletree Commercial Trust in 2011 and was renamed following a merger with Mapletree North Asia Commercial Trust on 3 August 2022. Its portfolio consists of 18 commercial properties with a net lettable area of 11.2 million square feet, valued at SGD 16.5 billion as of 31 March 2024.
Financial Performance
2QFY25 Results
- Distribution Per Unit (DPU): MPACT’s DPU for 2QFY25 declined by 11.6% year-on-year to 1.98 Singapore cents, falling below expectations. Gross revenue and net property income (NPI) decreased by 6.1% and 8.5% respectively, mainly due to the loss of income from the divestment of Mapletree Anson and higher property operating expenses.
- Net Finance Costs: Net finance costs decreased by 2.6% to SGD 56 million, aided by loan repayments from divestment proceeds. Despite this, DPU saw a decline, partly because of the absence of a one-off property tax refund recorded in 2QFY24.
- 1HFY25 Summary: Cumulatively, MPACT’s NPI fell by 4.2% year-on-year to SGD 347.1 million, and DPU decreased by 7.9% to 4.07 Singapore cents, which accounted for 47.9% of the initial FY25 forecast.
Portfolio Performance
Occupancy and Rental Reversions
- Occupancy Rate: MPACT’s portfolio committed occupancy dropped 3.7 percentage points quarter-on-quarter to 90.3%, marking the third consecutive quarter of decline. Notably, the most significant drop was seen in Japan, with a decline of 11.9 percentage points to 82.3%, attributed to the lease expiry of a major tenant.
- Rental Reversions: Overall portfolio rental reversions were positive at +4.1% for 1HFY25, though this was a moderation from the previous quarter. Singapore properties showed strong rental uplifts (+17.3% for VivoCity and +8.8% for other Singapore assets), while overseas markets experienced negative reversions, including -6.1% at Festival Walk (Hong Kong), -2.9% for China properties, -9.5% for Japan properties, and -27.3% at The Pinnacle Gangnam (South Korea).
Financial Position
Aggregate Leverage Ratio
MPACT’s aggregate leverage ratio decreased to 38.4%, down 2.1 percentage points quarter-on-quarter. This reduction was primarily driven by the repayment of loans using proceeds from the divestment of Mapletree Anson. However, this improvement was partially offset by revaluation losses of JPY 13.6 billion (~SGD 124.6 million) from three Japanese properties, notably the Fujitsu Makuhari Building, where a major tenant opted not to renew their lease.
Debt Management
MPACT maintains 83.6% of its debt hedged, providing stability against interest rate fluctuations. The gearing ratio improvement reflects strategic management of debt, with repayments contributing to lower leverage.
Investment Thesis
MPACT continues to benefit from a diversified portfolio across multiple markets in Asia, with strong assets in Singapore like VivoCity and Mapletree Business City. Despite headwinds from overseas properties, particularly in Greater China, the REIT’s strategic divestments have helped stabilize its financial position. MPACT has a robust management team and parentage, which supports its long-term investment prospects.
ESG Efforts
MPACT’s ESG rating was lowered in December 2023 due to a lower score in ‘Human Capital Development,’ attributed to a lack of disclosure on annual employee turnover. However, the REIT is actively pursuing sustainability initiatives, such as increasing green-certified buildings in its portfolio and adopting a green loan framework. It received a four-star rating with 86 points in the 2024 GRESB Real Estate Assessment, reflecting its ongoing efforts in resource efficiency and sustainability.
Risks and Challenges
- Macroeconomic Conditions: A slowdown in the macroeconomic environment could affect consumer and business sentiment, impacting MPACT’s performance.
- Tenant Renewal: The risk of non-renewal of leases by key tenants remains a concern, particularly in markets where occupancy has been declining.
- Overseas Headwinds: Continued negative rental reversions in overseas markets, especially Japan and Hong Kong, pose challenges to revenue stability.
Potential Catalysts
- Valuation Uplift: A higher-than-expected valuation uplift could drive positive investor sentiment.
- Accretive Acquisitions: Acquisitions that are accretive to DPU may enhance the overall portfolio performance.
- Improved Tenant Sales: Stronger momentum in footfall and tenant sales, particularly at VivoCity and Festival Walk, could boost MPACT’s revenue and profitability.
