If you are a shareholder of Mapletree Pan Asia Commercial Trust (MPACT), you should be aware that the REIT unit price has performed poorly this year. The unit price has fallen by nearly 30%, from a high of ~$1.84 this year to ~$1.3. The current level is even much lower than the price seen during the depth of the COVID-19 pandemic.
The REIT has recently reported its financial results. So, how was Mapletree Pan Asia Commercial Trust (MPACT) 1H FY23/24 financial results? Let’s dive in.
Financial Performance: Declining DPU
Here is the summary of the financial performance between 2Q FY23/24 and 2Q FY22/23:
| In SGD thousands | 2Q FY23/24 | 2Q FY22/23 | Change |
|---|---|---|---|
| Gross Revenue | 240,162 | 218,165 | 10.1% |
| Property Operating Expenses | (57,004) | (49,654) | 14.8% |
| Net Property Income | 183,158 | 168,511 | 8.7% |
| Net Finance Costs | (57,553) | (41,861) | 37.5% |
| Amount Available for Distribution to Unitholders | 118,035 | 117,683 | 0.3% |
| Distribution per Unit | 2.24 cents | 2.44 cents | -8.2% |
Revenue grew by a healthy 10.1% to $240.2 million, thanks to overseas properties and more robust performance from Singapore properties. However, expenses also climbed due to higher utility rates. The amount available for distribution stayed stable due to the higher net property income, which rose by 8.7% but was offset by higher net finance costs, which jumped 37.5%. DPU declined 8.2% to 2.24 cents, weighed down by higher utility costs, interest rates, and stronger SGD.
Overall, although the DPU declined again this last quarter, we think it is already expected. We expected expenses to rise and finance costs to jump as we have seen elevated energy costs and higher interest rates. As the higher interest rate environment is expected to continue, we will need to monitor the amount of refinancing that needs to be completed in the next few years, as this will put more pressure on distributable income.
Weakening Debt Profile
Here is the key metrics summary of MPACT’s debt profile:
| 2Q FY23/24 | 1Q FY23/24 | Change | |
|---|---|---|---|
| Aggregate Leverage Ratio | 40.7% | 40.7% | 0% |
| Adjusted Interest Coverage Ratio | 3.0x | 3.2x | -0.2x |
| % of Fixed Rate Debt | 79.9% | 74.2% | +5.7% |
| Weighted Average All-In Cost of Debt | 3.34% | 3.17% | +0.17% |
There is good and bad news here. The aggregate leverage ratio stayed stable at 40.7%, which is still far from the regulatory limit of 50%. The percentage of debt hedged to a fixed rate also increased by 5.7% to 79.9%, which can stabilize the financing cost as more and more debts are now fixed.
Now, onto the bad news: the adjusted ICR dropped again to 3.0x, down from 3.2x in the previous quarter and 4.4x last year. The weighted average cost of debt also increased again from 3.17% to 3.34%.
Debt Maturity Distribution
Only 1% of debt is due for refinancing for the rest of the 2023 fiscal year. This is good, as investors would not need to worry about a significant jump in financing costs this year. However, there is 21% due for FY24/25 and another 21% scheduled for FY25/26. Should the high-interest rate environment persist for longer, the financing cost will shoot up in the next two years as around 43% worth of the REIT’s debt needs to be refinanced at higher rates, weighing down the DPU. Regardless, MPACT’s debt maturity is quite well spread out over the next several years, and all REITs will eventually face higher financing costs.
Portfolio Occupancy
Let’s look at their portfolio occupancy:
| 2Q FY23/24 | 1Q FY23/24 | |
|---|---|---|
| Portfolio Occupancy | 96.3% | 95.7% |
| WALE | 2.5 years | 2.6 years |
MPACT’s portfolio occupancy is in good shape. The occupancy rate of its portfolio increased from 95.7% to 96.3%. Portfolio WALE declined slightly from 2.6 years to 2.5 years.
The lease expiry profile is also well spread out over the next several years across retail and office/business parks.
China & Hong Kong Portfolio
MPACT has about 30% exposure to the China & Hong Kong markets, which have not performed well this year. This has been a main driver of the drag on MPACT’s performance this year.
Despite strong performance in Singapore, we still saw negative rental reversion in both China and Hong Kong properties (-3.5% and -9.5%, respectively). The weakness in MPACT’s portfolio is expected, as we have seen accelerating weakness in this region since last year.
We will continue monitoring the situation to see when the market starts to recover. We believe MPACT’s portfolios in this region will also improve when the overall property market recovers.
Remarks
Mapletree Pan Asia Commercial Trust (MPACT) results seem mixed. On the plus side, the REIT is well managed and backed by a strong sponsor. Its Singapore and South Korea properties are doing well. The debt profile is also relatively healthy.
On the other hand, the REIT is heavily exposed to the Chinese and Hong Kong markets, which have negatively impacted its performance. It is also hard to predict when this regional weakness will start to turn around.
Additionally, if the higher interest rate environment persists, the ~43% of debt due for refinancing in the next two years may also weigh on distributable income in the future.
However, with the MPACT unit price at a multi-year low, a forward dividend yield of 8.42%, and a price-to-book ratio of 0.72, the valuation is becoming increasingly attractive. While MPACT has a relatively attractive valuation, investors should still be aware of the risks involved before investing.
To learn more about MPACT, please visit our Mapletree Pan Asia Commercial Trust (MPACT) analysis page and our Mapletree Pan Asia Commercial Trust (MPACT) dividend page.
You can view our Singapore REITs data page for analysis of other REITs.
Related page: 1H FY23/24 presentation slide
