On 29 January 2024, Mapletree Pan Asia Commercial Trust (“MPACT”) have announced their 2024 third quarter. Their financial position has remained relatively stable. However DPU has dropped this quarter, due to higher finance costs which is only partially offset by the higher net property income. The share price has also been on a downtrend, likely due to reflect the risks and yield of MPACT. Investors will need to monitor if this improves over the next few quarters, as market sentiment currently expects interest rate cuts by end of 2024.
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 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 | -10.1% | -10.5% |
DPU for the 9 months ending 31 December 2023 have decreased by 10.1% to SGD0.0662 from SGD0.0736 when compared to the same period in the previous financial year. 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 | 96.7% | 96.3% |
Occupancy rate as of 31 December 2023 stands at 96.7%. 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 | 40.8% | 40.7% |
Gearing ratio remains unchanged at 40.8% as of 31 December 2023. This to me is Unfavorable, as it is substantially high.
Interest coverage
| Metrics | Current | Previous |
|---|---|---|
| Interest Coverage | 3.0x | 3.0x |
The adjusted interest coverage is maintained at 3.0 times as of 31 December 2023. The metric is Favorable as it is above my preference of 3.0 times. This metric may improve over the next few quarters as the Federal Reserve on 20 March 2024 have voted to hold interest rates at a 23-year high for a fifth consecutive meeting, while signalling that it still expects to make three cuts this year. This was after increasing the interest rates to a range between 5.25% and 5.50% on 26 July 2023.
Website: US Federal Reserve holds key rate, pencils in 3 cuts this year
In the event that the interest rate increase further, MPACT may be subjected to changes in their cost of debt in the near future. I have thus performed a sensitivity analysis using the information as at 31 December 2023:
| Description | Amount (SGD’000) |
|---|---|
| Total Debt | $6,800,000 |
| Debt Not Hedged (%) | 15.0% |
| Debt at Floating Rate Exposed | $1,020,000 |
| 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 | -$5,100 | -1.1% |
| + 100 bps | -$10,200 | -2.3% |
| + 150 bps | -$15,300 | -3.4% |
| + 200 bps | -$20,400 | -4.6% |
| + 250 bps | -$25,500 | -5.7% |
| + 300 bps | -$30,600 | -6.9% |
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 | 2.8 years | 3.0 years |
Weighted average term to maturity of their debt stands at 2.8 years as of 31 December 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 | 0.74 | 0.86 |
The Price to Book (“P/B”) ratio currently stands at 0.74. This is computed using the closing share price of SGD1.28 on 28 March 2024 and the net asset value per share of SGD1.73 as of 31 December 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 |
|---|---|---|
| 2024 | 1.72% | SGD 0.022 |
| 2023 | 6.02% | SGD 0.091 |
| 2022 | 6.68% | SGD 0.101 |
The dividend payout has been on a downtrend ever since the merger. The expected payout for the calendar year 2024 would therefore be lower than 2023. As the first payout in 2024 amounted to SGD0.022 per share, this will translate to SGD0.088 per share when annualised.
With a closing share price of SGD1.28 as of 28 March 2024 and expected dividend payout of SGD0.088 per share, this translates to a dividend yield of 6.88%. For my benchmark, a general reasonable range would be around an average of 5.25% to 6.25% in the current environment. MPACT’s dividend yield is above the range. 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.
Website: Reasonable Dividend Yield 2024Q1
Other metrics
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 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 | -10.1% | Unfavorable |
| Occupancy | 96.7% | Favorable |
| Gearing Ratio | 40.8% | Unfavorable |
| Interest Coverage | 3.0x | Favorable |
| Debt Maturity Profile | 2.8 years | Favorable |
| Price to Book Ratio | 0.74 | Favorable |
| Overall | | Neutral |
Overall, the metrics indicate that it is neutral to invest in MPACT. Compared to the previous quarter, there are no significant changes to the fundamentals of MPACT. Their DPU continues to be weighed down by the higher finance costs. Investors will need to monitor if there any changes over the next few months.
Disclaimer: Not financial advice. All data and information provided on this site is for informational purposes only.
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