On 31 July 2023, Mapletree Pan Asia Commercial Trust (“MPACT”) have announced their 2024 first quarter result. The share price have continued to decrease from my previous article, which is not unexpected as it is reflecting the DPU decrease this quarter. Similar to other REITs, the DPU is likely going to continue to be eroded with higher finance costs, as the Federal Reserve this week indicated that interest rates need to remain high for the rest of the year. There may be further opportunities for investors to enter.
Website: Financial Statements And Related Announcement::First 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 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 | -3.1% | +6.1% |
It was noted that DPU for the first quarter ending 30 June 2023 have decreased by 3.1% to SGD0.0218 from SGD0.0250 when compared to the previous quarter. Do take note that although the amount available for distribution to unitholders have increased, DPU decreased due to the enlarged number of shares. DPU was weighed down by full quarter impact of higher utility costs, effects of higher interest rates and strong SGD against foreign currencies. This metric is Unfavorable.
Occupancy
| Metrics | Current | Previous |
|---|---|---|
| Occupancy | 95.7% | 95.4% |
Occupancy rate as at 30 June 2023 stands at 95.7%. 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 | 40.7% | 40.9% |
Gearing ratio stands at 40.7% as at 30 June 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 | 3.2x | 3.5x |
The interest coverage stands at 3.2 times as at 30 June 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 20 September 2023 have indicated that interest rates need to stay high for a longer period of time. This was after having increased the interest rates to a range between 5.00% and 5.25% on 26 July 2023, the highest level in 22 years.
Website: Fed declines to hike, but points to rates staying higher for longer
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 30 June 2023:
| Description | Amount (SGD’000) |
|---|---|
| Total Debt | $6,857,200 |
| Debt Not Hedged (%) | 25.8% |
| Debt at Floating Rate Exposed | $1,769,158 |
| 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 | -$8,846 | -2.0% |
| + 100 bps | -$17,692 | -4.0% |
| + 150 bps | -$26,537 | -6.0% |
| + 200 bps | -$35,383 | -7.9% |
| + 250 bps | -$44,229 | -9.9% |
| + 300 bps | -$53,075 | -11.9% |
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 | 2.9 years | 3.0 years |
Weighted average term to maturity of their debt stands at 2.9 years as at 30 June 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 | 0.83 | 0.91 |
The Price to Book (“P/B”) ratio currently stands at 0.83. This is computed using the closing share price of SGD1.45 on 22 September 2023 and the net asset value per share of SGD1.75 as at 30 June 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 | 4.72% | SGD 0.069 |
| 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 3 payouts in 2023, MPACT have declared a total dividend of SGD0.069 per share. Extrapolated for the full calendar year (ie 4 quarters), expected total dividend payout would be SGD0.092 per share.
With a closing share price of SGD1.45 as at 22 September 2023 and expected dividend payout of SGD0.092 per share, this translates to a dividend yield of 6.34%. 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 2023Q3
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 | -3.1% | Unfavorable |
| Occupancy | 95.7% | Favorable |
| Gearing Ratio | 40.7% | Unfavorable |
| Interest Coverage | 3.2x | Unfavorable |
| Debt Maturity Profile | 2.9 years | Favorable |
| Price to Book Ratio | 0.83 | Favorable |
| Overall | | Neutral |
Overall, the metrics indicate that it is neutral to invest in MPACT. The share price has been on a downtrend since the previous quarter, and we may see further discounts and opportunities for new investors. 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 Full Year Result
