Mapletree Pan Asia Commercial Trust (MPACT) Dropped 7% After Reporting 2Q FY24/25 Results: What We Don’t Like

Mapletree Pan Asia Commercial Trust (MPACT) reported disappointing financial results for 2Q FY24/25, which caused the unit price to tank by ~7%.

This drop is quite significant for REITs, as most investors in this sector seek stability in their portfolios. Let’s examine the results more closely.

What We Don’t Like

Financial Performance

Here is the comparison of MPACT 2Q FY/24/25 and 2Q FY23/24:

This financial result was likely disappointing for most investors. Although some were already expected, the deterioration was more than expected. Gross revenue declined by 6.1% YoY, while operating expenses increased by 1.7% YoY. DPU declined by 11.6% YoY.

The lower revenue was contributed by the divestment of Mapletree Anson, lower occupancy rate, lower rental reversion, and a stronger SGD against RMB and JPY.

Portfolio Occupancy

Let’s look into MPACT portfolio occupancy across geography:

Overall, the occupancy rates were lower compared to last year. The most significant decline came from their Japanese properties, which declined from 97.3% to 82.3%. Apart from that, the decline doesn’t look that material.

However, before we become too comfortable with these relatively high occupancy rates, let us present the rental reversion for these properties:

Even though the total portfolio rental reversion is a positive 4.1%, we can see that only MPACT’s Singapore properties contributed to the positive reversion. All overseas properties had negative rental reversions. These negative rental reversions may affect MPACT’s DPU in the coming quarters as rental revenue from these properties will be lower.

Valuation of Three Properties in the Makuhari Submarket of Chiba, Japan

The management also disclosed a recent valuation update on its three Makuhari properties, which showed a 17.2% decline in property value from $660.8 million to $547 million. Ouch! Additionally, as the single tenant there, Fujitsu decided not to renew its lease upon expiry on 31 March 2026.

What We Like

While the MPACT 2Q FY24/25 results brought some disappointments, the report also revealed some positive aspects. Singapore properties have been doing very well, especially with the healthy rental reversion on its crown jewel, VivoCity.

There is also little debt to refinance for the next two quarters, and only around 15% are due the next fiscal year. Given that we may have entered an interest rate cut cycle, we think MPACT’s borrowing costs will start to stabilize in the next few quarters. We have previously seen a continued deterioration in these borrowing costs as the REIT refinanced its maturing debt with higher rates.

What Do We Do?

We have mixed feelings about MPACT due to the quality of its assets. A few years ago, this REIT’s merger felt like a ‘forceful’ merging of ‘higher quality’ Singapore assets with ‘lower quality’ overseas assets. The past several quarters have proven this thesis, as the Singapore assets continued to be the bright spots while the overseas properties continued to be a drag.

We already have a small position in this REIT, and given the reservations we have above, we may not be too eager to add more positions to MPACT. We will continue to monitor the rental reversion on those overseas properties and what the management will do to rejuvenate them.

What do you think? Are you interested in investing in MPACT after this latest financial result?

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