On 26 October 2023, Mapletree Pan Asia Commercial Trust (“MPACT”) have announced their 2024 half year result. Their DPU continue to see a decrease this quarter, although the rest of their financial position metrics have remained relatively stable. This is not unexpected given the current environment. However it is trading at a discount compared to the other Mapletree REITs. Investors will need to monitor if there are any improvements as interest rates decrease in 2024.
Website: Financial Statements And Related Announcement::Second Quarter And/Or Half 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 | -10.5% | -3.1% |
DPU for the first half of the financial year have decreased by 10.5% to SGD0.0442 from SGD0.0494 when compared to the same period in the previous financial year. Overall, DPU was weighed down by a full period impact of higher utility costs, higher interest rates and forex pressures from a stronger SGD against all foreign currencies. This is Unfavorable.
Occupancy
| Metrics | Current | Previous |
|---|---|---|
| Occupancy | 96.3% | 95.7% |
Occupancy rate as at 30 September 2023 stands at 96.3%. 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% | 40.7% |
Gearing ratio remains unchanged at 40.7% as at 30 September 2023. This to me is Unfavorable, as it is substantially high and close to the MAS limit of 50% when compared to other REITs. It may be difficult for them to fund any new acquisitions using debt.
Interest coverage
| Metrics | Current | Previous |
|---|---|---|
| Interest Coverage | 3.0x | 3.2x |
The interest coverage stands at 3.0 times as at 30 September 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.
This metric is likely to improve however as the Federal Reserve on 13 December 2023 held its key interest rate steady for the third straight time and set the table for multiple cuts to come in 2024 and beyond. The interest rates are therefore maintained at a range between 5.25% and 5.50%, which was increased on 26 July 2023, the highest level in 22 years.
Website: Fed holds rates steady, indicates three cuts coming in 2024
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 September 2023:
| Description | Amount (SGD’000) |
|---|---|
| Total Debt | $6,844,700 |
| Debt Not Hedged (%) | 20.1% |
| Debt at Floating Rate Exposed | $1,375,785 |
| 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 | -$6,879 | -1.5% |
| + 100 bps | -$13,758 | -3.1% |
| + 150 bps | -$20,637 | -4.6% |
| + 200 bps | -$27,516 | -6.2% |
| + 250 bps | -$34,395 | -7.7% |
| + 300 bps | -$41,274 | -9.3% |
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 | 2.9 years |
Weighted average term to maturity of their debt stands at 3.0 years as at 30 September 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 | 0.86 | 0.83 |
The Price to Book (“P/B”) ratio currently stands at 0.86. This is computed using the closing share price of SGD1.51 on 22 December 2023 and the net asset value per share of SGD1.75 as at 30 September 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 | 6.02% | SGD 0.091 |
| 2022 | 6.68% | SGD 0.101 |
With a closing share price of SGD1.51 as at 22 December 2023 and dividend payout of SGD0.091 per share, this translates to a dividend yield of 6.02%. For my benchmark, a general reasonable range would be around an average of 6.0% to 7.0% in the current environment. MPACT’s dividend yield is within the range.
Website: Reasonable Dividend Yield 2023Q4
The dividend yield is Favorable for an asset under a premium manager. Furthermore interest rates are expected to decrease from 2024 onwards. The required rate of return may not be as high moving forward.
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 | -10.5% | Unfavorable |
| Occupancy | 96.3% | Favorable |
| Gearing Ratio | 40.7% | Unfavorable |
| Interest Coverage | 3.0x | Unfavorable |
| Debt Maturity Profile | 3.0 years | Favorable |
| Price to Book Ratio | 0.86 | Favorable |
| Overall | | Neutral |
Overall, the metrics indicate that it is neutral to invest in MPACT. It is trading at an attractive yield below book value now, and there may be further share price appreciation in the future when interest rates decrease. The gearing ratio however remains unfavorable and something investors need to keep an eye out for.
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 First Quarter Result
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