Mapletree Pan Asia Commercial Trust (SGX: N2IU): 2023 Third Quarter Result

On 31 January 2023, Mapletree Pan Asia Commercial Trust (“MPACT”) have announced their 2023 third quarter result. The financials are stable but there are a few things to take note of.

One key thing on my mind is that their percentage of fixed rate debt as at 31 December 2022 have increased to 78.3% from 72.5% in the previous quarter. This was not done through taking on excessive debt, as noted that the total gross debt as of 31 December 2022 stands at SGD6,865 million, down from SGD6,946 million as at 30 September 2022.

This means to say that MPACT has renewed at the current interest rate climate. This also explains why their interest coverage has dropped significantly, as they have cancelled the old loans and borrowings which were signed at lower interest rates, and taking on new current loans at higher interest rates. Whether it pays off we will know in the next few quarters, as currently management forecasts that interest rates will continue to rise and would be better to lock in first.

Another consideration is that not too long ago, their projected DPU was at SGD0.1018 per share after the merger between MCT and MNACT. The current quarter DPU of SGD0.0242 per share if extrapolated for 4 quarters will amount to SGD0.0968 per share, a slight shortfall from their target. Nonetheless the financials have improved from the previous quarter, and it remains on track to hit their target.

Website: Financial Statements And Related Announcement::Third Quarter Results


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’s portfolio comprises 18 commercial properties across five key gateway markets of Asia – five in Singapore, one in Hong Kong, two in China, nine in Japan and one in South Korea. They have a total NLA of 11.0 million square feet and valued at SGD16.7 billion as at 31 December 2022.

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”)

MetricsCurrentPrevious
Distribution Per Unit+8.1%+12.5%

It was noted that DPU for the 9 months ending 31 December 2022 have increased by 8.1% to SGD0.0736 from SGD0.0681 in the same period for the previous financial year. This was boosted by contribution from properties acquired through the merger, higher contribution from VivoCity and MBC, partially offset by higher finance costs.

This metric is Favorable.

Occupancy

MetricsCurrentPrevious
Occupancy95.5%96.9%

Occupancy rate as at 31 December 2022 stands at 95.5%. This is Favorable as it is above my expected healthy occupancy rate of 95% and MPACT have been able to fully utilize their assets.

Gearing ratio

MetricsCurrentPrevious
Gearing Ratio40.2%40.1%

Gearing ratio stands at 40.2% as at 31 December 2022 . This to me is Unfavorable, as it is substantially high and close to the MAS limit of 50% when compared to other REITs. There may be difficulty for them to fund any new acquisitions using debt.

Interest coverage

MetricsCurrentPrevious
Interest Coverage3.8x4.4x

The interest coverage stands at 3.8 times as at 31 December 2022. This is the adjusted interest coverage that is provided by management which includes the amount reserved for distribution to Perpetual Securities holders.

The metric is Unfavorable as the interest coverage is lower than my preference of 5.0 times and seems to be worsening. This is a concern as interest rates continue to rise, and the Federal Reserve on 1 February 2023 has hiked interest rates to a range between 4.5% and 4.75%, and gave little indication it is nearing the end of this hiking cycle.

Website: Fed raises rates a quarter point, expects ‘ongoing’ increases

As the interest rate may potentially increase further, MPACT may be subjected to significant change in their cost of debt in the near future. One good thing that management has done though is to increase their percentage of fixed rate debt to 78.3%, as compared to 72.5% as of 30 September 2022.

I have thus performed a sensitivity analysis using the information as at 31 December 2022:

DescriptionAmount (SGD’000)
Total Debt$6,865,600
Debt Not Hedged (%)21.7%
Debt at Floating Rate Exposed$1,489,835
Distributable Income FY2022$511,379

For distributable income FY2022, I have taken the combination of Mapletree Commercial Trust SGD301 million and Mapletree North Asia Commercial Trust SGD210 million.

Interest rate sensitivity analysis as below:

Change in Interest RatesDecrease in Distributable Income (SGD’000)Change as % of FY2022 Distribution
+ 50 bps-$7,449-1.5%
+ 100 bps-$14,898-2.9%
+ 150 bps-$22,348-4.4%
+ 200 bps-$29,797-5.8%
+ 250 bps-$37,246-7.3%
+ 300 bps-$44,695-8.7%

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.

Debt maturity profile

MetricsCurrentPrevious
Debt Maturity Profile2.8 years3.0 years

Weighted average term to maturity of their debt stands at 2.8 years as at 31 December 2022. This is Favorable and it allows them sufficient time to refinance their debts as they fall due.

Price to Book Ratio

MetricsCurrentPrevious
Price to Book Ratio0.970.92

The Price to Book (“P/B”) ratio currently stands at 0.97. This is computed using the closing share price of SGD1.72 on 13 February 2023 and the net asset value per share of SGD1.78 as at 31 December 2022.

The metric is Neutral as although we are paying below book value for its assets, the reason it is trading at a discount can be seen with its lower dividend yield. Furthermore, Mapletree REITs usually command a premium due to their strong reputation, and there is potential that if the results become more unfavorable, they may experience a larger decrease in price.


Dividend yield

YearYieldTotal
20231.41%SGD 0.024
20221.10%SGD 0.019
Extracted from Dividends.sg

As the merger was just completed, there is no historical comparable data of dividend available. For 2023Q3, MPACT have declared a dividend of SGD0.024 per share for the quarter ending 31 December 2022. Combined with the SGD0.019 per share in the previous quarter and extrapolated for the full financial year (ie 4 quarters), expected total dividend payout would be SGD0.086 per share.

With a closing share price of SGD1.72 as at 13 February 2023 and expected dividend payout of SGD0.086, this translates to a dividend yield of 5.00%. For my benchmark, a general reasonable range would be around an average of 5.5% to 6.5% in the current environment. MPACT’s dividend yield is below my benchmark.

Website: Reasonable Dividend Yield 2023Q1

If using dividend yield of 5.5% as a benchmark for a more premium REIT, based on the dividend of SGD0.086 there is potential for MPACT to see its share price drop by another 9.1% to SGD1.56. Investors will thus need to be mentally prepared that the share price might further fall.

YieldShare PriceDownside
Current (5.00%)1.72
5.50%1.56-9.1%
6.50%1.32-23.1%
7.50%1.15-33.3%
8.50%1.01-41.2%

The dividend yield is Unfavorable.


Other metrics

Tenant profile

MPACT has an enlarged portfolio covering multiple trade sectors. The high quality and diverse tenant base provides resilience to the MPACT portfolio across challenging events. The top-10 tenants accounted for only 22.6% of MPACT’s portfolio with no single tenant accounting for more than 5.8% during the period, providing income diversity to the portfolio.


Summary

MetricsFinancialsRating
Distribution Per Unit+8.1%Favorable
Occupancy95.5%Favorable
Gearing Ratio40.2%Unfavorable
Interest Coverage3.8xUnfavorable
Debt Maturity Profile2.8 yearsFavorable
Price to Book Ratio0.97Neutral
OverallNeutral

Overall, the metrics indicate that it is neutral to invest in MPACT. Despite the relatively stable results, investors need to take note that their lower dividend yield, may not necessary be worth the risk especially as safe assets have seen their yield rise considerably with rising interest rates. The appeal of MPACT may take a turn for the worse and further downside may happen.

Disclaimer: Not financial advice. All data and information provided on this site is for informational purposes only.


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