Date of Report: October 25, 2024
Broker: CGS International

1. Overview of 1HFY3/25 Performance

• Mapletree Pan Asia Commercial Trust (MPACT) reported a 1HFY3/25 Distribution Per Unit (DPU) of 4.07 Singapore cents, which marked a 7.9% year-over-year (YoY) decline. The performance was below expectations, forming only 46.4% of the broker’s FY25 forecast (FY25F).
• Net Property Income (NPI) fell by 4.2% YoY, attributed mainly to the divestment of Mapletree Anson, lower contributions from overseas assets, and the absence of a property tax refund previously recognized for VivoCity.

2. Singapore Portfolio Performance

• Despite the overall dip, MPACT’s Singapore portfolio showed resilience with higher NPI and positive rental reversions.
• Portfolio occupancy within Singapore remained strong, with occupancy rates for Mapletree Business City (MBC) at 92.5% and VivoCity at 99.3%.
• Other office assets in Singapore saw a 1.9% improvement in occupancy, reaching 97.9%.

3. Challenges in Overseas Markets

• MPACT faced headwinds in its overseas markets, especially in Japan, China, and South Korea:
  • Japan: A significant non-renewal notice from the sole tenant at Fujitsu Makuhari led to a half-year revaluation, resulting in a S$120 million write-down. Valuations for several Japanese properties fell as valuers shifted from a master lease to multi-tenant valuations.
  • China: Negative reversions persisted, driven by oversupply issues in major cities like Shanghai and Beijing.
  • South Korea: A notable decrease in occupancy at Pinnacle Gangnam and softening of the Korea office market may suggest that rental rates have peaked.

4. Key Financial Adjustments and Forecasts

• The broker lowered its FY25F-27F Dividend Per Share (DPS) estimates by 6.8-7.6% due to challenges in MPACT’s Japan assets and subdued contributions from VivoCity.
• The target price was adjusted from S$1.66 to S$1.53, indicating an 8.5% upside from the current price.

5. Strategic Focus: Singapore Portfolio and Capital Management

• The report reiterated an “Add” rating on MPACT, citing positive tailwinds from the Singapore portfolio as a core reason.
• Re-rating catalysts include tenant remixing at Festival Walk, strategic capital recycling, and reinvestments.
• MPACT’s management has maintained a cautious approach towards acquisitions, opting to preserve low-40% gearing levels. They have no immediate plans for share buybacks despite holding the mandate.

6. ESG Performance

• MPACT received an overall ESG rating of B- for 2024 from LSEG, showing improvements across Environmental, Social, and Governance pillars.
• The company continues to push for sustainability, with ongoing efforts to achieve and maintain green building certifications across its portfolio, both domestically and internationally.

7. Market Outlook and Risks

• Positive Catalysts: Tailwinds from the Singapore portfolio, tenant remixing, and potential benefits from capital recycling activities.
• Downside Risks: Prolonged vacancies, unfavourable forex movements, and ongoing challenges in overseas markets that could erode earnings growth.

8. Key Metrics and Financial Performance Summary

• Market Cap: US$5.62 billion
• Average Daily Turnover: US$17.6 million
• Dividend Yield: Forecasted at 5.75% to 6.02% for FY25-FY27
• Major Shareholders:
  • Temasek Holdings: 55.5%
  • Schroders: 3.2%
  • Blackrock: 1.4%

The report offers a nuanced view of MPACT’s operational performance and strategic focus, highlighting both the challenges and opportunities that lie ahead for the REIT.