On 27 April 2023, Mapletree Pan Asia Commercial Trust (“MPACT”) have announced their 2023 full year result. The financials are relatively stable. However, the price to book ratio and dividend yield have turned favorable recently due to the decrease in share price to SGD1.61 as at 23 June 2023 from SGD1.72 in my previous article on 13 February 2023. While this may look like a good entry point, investors need to take note of the potential interest rate hikes for 2023, as suggested by the Federal Reserve on 22 June 2023.
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 DPU of SGD0.047 per share for the first half of 2023 if extrapolated for the full calendar year will amount to SGD0.094 per share, a shortfall from their target. It may require a few more quarters of improvement in financials to hit their target.
Website: Financial Statements And Related Announcement::Full Yearly 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 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 | +6.1% | +8.1% |
It was noted that DPU for the financial year ending 31 March 2023 have increased by 6.1% to SGD0.0961 from SGD0.0906 in the previous financial year. Do take note the comparative distribution of SGD0.0906 excludes the release of the remaining SGD15.7 million that was retained in 4Q FY19/20 so that it is more combarable. This metric is Favorable.
Occupancy
| Metrics | Current | Previous |
|---|---|---|
| Occupancy | 95.4% | 95.5% |
Occupancy rate as at 31 March 2023 stands at 95.4%. 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
| Metrics | Current | Previous |
|---|---|---|
| Gearing Ratio | 40.9% | 40.2% |
Gearing ratio stands at 40.9% as at 31 March 2023. 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
| Metrics | Current | Previous |
|---|---|---|
| Interest Coverage | 3.5x | 3.8x |
The interest coverage stands at 3.5 times as at 31 March 2023. This is the adjusted interest coverage that is provided by management which includes the amount reserved for distribution to Perpetual Securities holders.
This low interest coverage is not unexpected given the high interest rate environment, but the metric is Unfavorable as it is lower than my preference of 5.0 times and seems to be worsening. The Federal Reserve on 22 June 2023 have hinted to continue hiking interest rates, after their last rate hike in 3 May 2023 have brough the interest rates to a range between 5.00% and 5.25%.
Website: US Fed official says more rate hikes necessary
As the interest rate may potentially increase further, MPACT may be subjected to significant change in their cost of debt in the near future. I have thus performed a sensitivity analysis using the information as at 31 March 2023:
| Description | Amount (SGD’000) |
|---|---|
| Total Debt | $6,940,800 |
| Debt Not Hedged (%) | 25.0% |
| Debt at Floating Rate Exposed | $1,735,200 |
| Distributable Income FY2023 | $445,598 |
Interest rate sensitivity analysis as below:
| Change in Interest Rates | Decrease in Distributable Income (SGD’000) | Change as % of FY2023 Distribution |
|---|---|---|
| + 50 bps | -$8,676 | -1.9% |
| + 100 bps | -$17,352 | -3.9% |
| + 150 bps | -$26,028 | -5.8% |
| + 200 bps | -$34,704 | -7.8% |
| + 250 bps | -$43,380 | -9.7% |
| + 300 bps | -$52,056 | -11.7% |
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
| Metrics | Current | Previous |
|---|---|---|
| Debt Maturity Profile | 3.0 years | 2.8 years |
Weighted average term to maturity of their debt stands at 3.0 years as at 31 March 2023. 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 | 0.91 | 0.97 |
The Price to Book (“P/B”) ratio currently stands at 0.91. This is computed using the closing share price of SGD1.61 on 23 June 2023 and the net asset value per share of SGD1.76 as at 31 March 2023.
The metric is Favorable as we are paying below book value for its assets and 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
| Year | Yield | Total |
|---|---|---|
| 2023 | 2.90% | SGD 0.047 |
| 2022 | 1.10% | SGD 0.019 |
As the merger was just completed in 2022, there is no historical comparable data of dividend available. For the 2 payouts in the first half of 2023, MPACT have declared a total dividend of SGD0.047 per share. Extrapolated for the full calendar year (ie 4 quarters), expected total dividend payout would be SGD0.094 per share.
With a closing share price of SGD1.61 as at 23 June 2023 and expected dividend payout of SGD0.094 per share, this translates to a dividend yield of 5.84%. 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 within the range.
Website: Reasonable Dividend Yield 2023Q2
The dividend yield is Favorable for an asset under a premium manager.
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 22.7% of MPACT’s portfolio with no single tenant accounting for more than 5.9% during the period, providing income diversity to the portfolio.
Summary
| Metrics | Financials | Rating |
|---|---|---|
| Distribution Per Unit | +6.1% | Favorable |
| Occupancy | 95.4% | Favorable |
| Gearing Ratio | 40.9% | Unfavorable |
| Interest Coverage | 3.5x | Unfavorable |
| Debt Maturity Profile | 3.0 years | Favorable |
| Price to Book Ratio | 0.91 | Favorable |
| Overall | | Favorable |
Overall, the metrics indicate that it is favorable to invest in MPACT. The results have been relatively stable and the share price drop provides a good discount and opportunity for new investors. Take note however that with interest rates likely to continue rising, MPACT may see a drop in DPU or further depreciation of share price as safe assets yield may rise.
Disclaimer: Not financial advice. All data and information provided on this site is for informational purposes only.
Previous Post
Website: Mapletree Pan Asia Commercial Trust (SGX: N2IU): 2023 Third Quarter Result
Excellent analysis and comments. Much appreciated. Btw I am invested in MPACT.
Dear Sonny Pierce,
Thank you for reading as well. Do have a good day ahead.
Best Regards,
ViresInSolitudine