On 30 July 2024, Mapletree Pan Asia Commercial Trust (“MPACT”) have announced their first quarter result for FY2025. The key thing to note this quarter is the significant decrease in occupancy rate, noticeably due to their property MBC, SG which saw occupancy rate decreased to 92.8% as of 30 June 2024. This may result in a continued downtrend for DPU from operations over the next few quarters. It is a good thing for MPACT that rate cuts are in the horizon, which may help to boost investor confidence.
Subsequently after the result announcement, on 31 July 2024, MPACT has completed the divestment of Mapletree Anson. The property is noted to have an NPI yield of 3.8% based on divestment consideration. Therefore, on paper management have indicated that the divestment will be 1.5% DPU accretion to MPACT Unitholders on pro forma basis.
Website: Financial Statements And Related Announcement::First Quarter Results
Website: Asset Acquisitions And Disposals::Completion of The Divestment of Mapletree Anson
Background
MPACT is a real estate investment trust (“REIT”) positioned to be the proxy to key gateway markets of Asia. Listed on the Singapore Exchange Securities Limited (“SGX-ST”), it made its public market debut as Mapletree Commercial Trust on 27 April 2011 and was renamed MPACT on 3 August 2022 following the merger with Mapletree North Asia Commercial Trust.
Its principal investment objective is to invest on a long-term basis, directly or indirectly, in a diversified portfolio of income-producing real estate used primarily for office and/or retail purposes, as well as real estate-related assets, in the key gateway markets of Asia (including but not limited to Singapore, China, Hong Kong, Japan and South Korea).
MPACT is managed by MPACT Management Ltd. (“MPACTM” or the “Manager”), a wholly owned subsidiary of MIPL. The Manager aims to provide unitholders of MPACT (“Unitholders”) with a relatively attractive rate of return on their investment through regular and steady distributions, and to achieve long-term stability in Distribution per Unit (“DPU”) and Net Asset Value (“NAV”) per Unit, while maintaining an appropriate capital structure for MPACT.
Key Metrics
Distribution Per Unit (“DPU”)
| Metrics | Current | Previous |
|---|---|---|
| Distribution Per Unit | -4.1% | -7.3% |
DPU for the first quarter of FY2025 decreased by 4.1% to SGD0.0209 per share from SGD0.0218 per share for the same period in the previous financial year. DPU was impacted due to the increase in finance costs as well as a foreign exchange impact as SGD strengthened against JPY, RMB and KRW. Also further noted that the overseas properties saw decreases in net property income which were offset by stronger performance of Singapore properties. This metric is Unfavorable and can see that in the short-term MPACT will continue to be dragged by the overseas properties.
Occupancy
| Metrics | Current | Previous |
|---|---|---|
| Occupancy | 94.0% | 96.1% |
Occupancy rate as of 30 June 2024 decreased significantly to 94.0%. the sharp decrease was noted at MBC SG, which saw occupancy rate decrease to 92.8% as of 30 June 2024 from 96.0% in the previous quarter. There were no disclosures by management on the reason for the decrease. The metric shifted towards Neutral as it is below my expected healthy occupancy rate of 95%.
Gearing ratio
| Metrics | Current | Previous |
|---|---|---|
| Gearing Ratio | 40.5% | 40.5% |
Gearing ratio remains unchanged at 40.5% as of 30 June 2024. The metric remains Unfavorable, as it is substantially high.
Interest coverage
| Metrics | Current | Previous |
|---|---|---|
| Interest Coverage | 2.8x | 2.9x |
The adjusted interest coverage has decreased slightly to 2.8 times as of 30 June 2024. The metric remains Neutral as it is still below my preference of 3.0 times.
Debt maturity profile
| Metrics | Current | Previous |
|---|---|---|
| Debt Maturity Profile | 3.1 years | 3.0 years |
Weighted average term to maturity of their debt lengthened to 3.1 years as of 30 June 2024. This is Favorable and it allows them sufficient time to refinance their debts as they fall due.
Price to Book Ratio
| Metrics | Current | Previous |
|---|---|---|
| Price to Book Ratio | 0.75 | 0.70 |
The Price to Book (“P/B”) ratio currently stands at 0.75. This is computed using the closing share price of SGD1.32 on 23 August 2024 and the net asset value per share of SGD1.76 as of 30 June 2024. The metric is Favorable as we are paying below book value for its assets.
Dividend
| Year | Yield | Total |
|---|---|---|
| 2024 | 4.98% | SGD 0.066 |
| 2023 | 6.89% | SGD 0.091 |
| 2022 | 7.64% | SGD 0.101 |
With the dividend payout of SGD0.0209 per share in the third quarter of the calendar year 2024, it confirms that the dividend payout is still on a downtrend. It is likely that the dividend payout in the fourth quarter will be similar to the current payout. The expected total dividend payout for the calendar year 2024 is therefore at SGD0.086 per share when annualized.
With a closing share price of SGD1.32 as of 23 August 2024, this translates to a dividend yield of 6.52%. For my benchmark, a general reasonable yield would be around 5.75%. MPACT’s dividend yield is above the range. The dividend yield is Favorable.
Website: Reasonable Dividend Yield 2024Q3 – 5.75%
Interest Rate Sensitivity
The Federal Reserve on 23 August 2024 has signaled that they are ready to cut interest rates, confident that inflation is easing to normal levels and wary of any more slowing in the job market. This was after increasing the interest rates to a range between 5.25% and 5.50% on 26 July 2023. Take note however that there were no specific timeline or forecasts, though market expectations are that the cut will happen in September 2024.
Website: Fed Chair Powell: ‘The time has come’ for interest rate cuts
In the event that the interest rate increase further, MPACT may be subjected to changes in their cost of debt in the near future. The debt profile of MPACT is as below:
| Description | Amount (SGD’000) |
|---|---|
| Total Debt | $6,818,900 |
| Debt Not Hedged (%) | 21.1% |
| Debt at Floating Rate Exposed | $1,438,788 |
| Distributable Income FY2024 | $468,569 |
I have performed the interest rate sensitivity analysis as below.
| Change in Interest Rates | Decrease in Distributable Income (SGD’000) | Change as % of FY2024 Distribution |
|---|---|---|
| + 50 bps | -$7,194 | -1.5% |
| + 100 bps | -$14,388 | -3.1% |
| + 150 bps | -$21,582 | -4.6% |
| + 200 bps | -$28,776 | -6.1% |
Do note the above is my estimation which may be different from management’s estimation. Nonetheless, if the interest rates were to increase by the basis points above, MPACT may experience a fall in DPU accordingly.
Tenant Profile
MPACT has an enlarged portfolio covering multiple trade sectors. The high quality and diverse tenant base provide resilience to the MPACT portfolio across challenging events. The top 10 tenants accounted for only 21.0% of MPACT’s portfolio with no single tenant accounting for more than 5.5% during the period, providing income diversity to the portfolio.
Summary
| Metrics | Financials | Rating |
|---|---|---|
| Distribution Per Unit | -4.1% | Unfavorable |
| Occupancy | 94.0% | Neutral |
| Gearing Ratio | 40.5% | Unfavorable |
| Interest Coverage | 2.8x | Neutral |
| Debt Maturity Profile | 3.1 years | Favorable |
| Price to Book Ratio | 0.75 | Favorable |
| Overall | Neutral |
Overall, the metrics remain Neutral for MPACT. The continued decrease in DPU remains a concern and investors will need to assess their risk appetite while waiting for it to bottom. This may not be helped by the decrease in occupancy noted this quarter. With the risks MPACT carry, they are still trading at a discount, which provides margin of safety for investors willing to take the risk.
Disclaimer: Not financial advice. All data and information provided on this site is for informational purposes only.
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Website: Mapletree Pan Asia Commercial Trust (SGX: N2IU): 2024 Full Year Result
