Resilient Growth Amid Challenges: Mapletree Pan Asia Commercial Trust’s Strategic Moves in Asia

Date of Report: October 29, 2024
Broker Name: UOB Kay Hian Private Limited

Company Overview

Mapletree Pan Asia Commercial Trust (MPACT) is an income-producing real estate investment trust (REIT) listed on the Singapore Exchange (SGX) Main Board since April 27, 2011. It primarily invests in office and retail spaces across key Asian gateway markets. MPACT completed a major merger with Mapletree North Asia Commercial Trust on July 21, 2022, significantly expanding its portfolio reach in the region.

Stock Data

Bloomberg Ticker: MPACT SP
Share Price: S$1.33
Target Price: S$1.71, representing an upside of 28.6%
Market Capitalization: S$6,997.0 million (US$5,291.5 million)
Sector: Real Estate
Shares Issued: 5,260.9 million
Major Shareholder: Temasek Holdings (56% ownership)

Key Financial Metrics

FY25 NAV/Share: S$1.71
FY25 Net Debt/Share: S$1.09
Distribution Per Unit (DPU): 1.98 S cents for 2QFY25, down 11.6% year-on-year.
Distribution Yield for FY26: 6.4%
P/NAV: 0.78x

2QFY25 Financial Performance

Revenue and Net Property Income (NPI): MPACT reported gross revenue of S$225.6 million, a year-on-year decline of 6.1%, primarily due to the divestment of Mapletree Anson and weaker overseas contributions influenced by the depreciation of the Japanese yen.
Distributable Income: The trust reported a distributable income of S$104.0 million, an 11.9% decrease year-on-year.
Finance Costs: Finance costs saw a reduction of 2.6% year-on-year.

Geographic Portfolio Highlights

Singapore

Singapore remains a core market for MPACT, accounting for 53% of its portfolio value. Key properties include:

VivoCity: The mall achieved a rental reversion of 17.3% with an occupancy rate of 99.3%.
Mapletree Business City (MBC): Positive rental reversion of 2.5% and stable occupancy at 92.5%.
Other Properties: Improvements in occupancy, such as mTower and Bank of America HarbourFront, which collectively achieved a positive rental reversion of 8.8%.

Hong Kong

Festival Walk in Hong Kong shows signs of stabilization with shopper traffic increasing by 7.9% quarter-on-quarter and tenant sales up by 3.1%. Despite these improvements, occupancy dropped slightly to 96.4%, with rental reversions moderating to -6.1%.

Japan

Three office properties in the Makuhari sub-market of Chiba, Japan, faced valuation challenges. Fujitsu, the sole tenant at the Makuhari Building, will not renew its lease upon its expiry in March 2026, leading to a property valuation markdown of 17% or S$114 million.

Greater China

MPACT’s properties in Greater China, such as Gateway Plaza in Beijing and Sandhill Plaza in Shanghai, comprise 37% of its portfolio valuation, positioning it to benefit from China’s anticipated fiscal stimulus aimed at reviving domestic consumption.

Key Strategic Initiatives

Divestment and Deleveraging

MPACT divested Mapletree Anson in July 2024, which contributed to a reduction in its aggregate leverage to 38.4%. The trust maintains a well-staggered debt maturity profile, with no single year accounting for over 24% of debt refinancing requirements.

Cost of Debt Management

MPACT’s average cost of debt remained stable at 3.56% in 2QFY25. The management anticipates maintaining a mid-3% cost of debt in FY25, with potential benefits expected from upcoming interest rate cuts.

Ongoing Projects and Future Prospects

VivoCity Revitalization

VivoCity is undergoing a reconfiguration project at basement 2, expected to be completed by the end of 2025. This asset enhancement initiative (AEI) will increase the number of food kiosks and add 14,000 square feet of retail net lettable area (NLA) through the conversion of carpark space. The total cost of S$42 million is anticipated to yield a return on investment above 10%.

Beneficiary of China’s Fiscal Policy

With China anticipated to introduce fiscal stimulus measures in November 2024, MPACT stands to gain as its Greater China portfolio could benefit from enhanced consumer demand, driven by policy support and easing of financial restrictions in the region.

Risk Factors and Forecasts

MPACT has revised its FY27 DPU forecast down by 3% due to the non-renewal by Fujitsu in Japan, assuming it will backfill half of the vacant space. The broker maintains a “BUY” recommendation with a target price of S$1.71 based on a discounted dividend model (cost of equity: 6.75%, terminal growth: 2.0%).

Key Catalysts

Continued recovery in Singapore’s retail and office sectors, supported by stable assets like VivoCity and MBC.
Potential growth from China’s fiscal stimulus impacting the Greater China portfolio.
Expansion and revitalization in key Singapore properties aligned with the development of the Greater Southern Waterfront, rejuvenating Sentosa Island, and enhancing the Pulau Brani area.