Mapletree Pan Asia Commercial Trust (MPACT) is a leading Singapore-based real estate investment trust (REIT) that owns commercial properties across key Asian markets. Currently, MPACT’s diversified portfolio comprises 18 commercial properties, including office spaces, retail properties, and business parks situated in strategic locations. These include five properties in Singapore, two in China, nine in Japan, and one each in Hong Kong and South Korea, totalling a lettable area of 11.2 million square feet and a valuation of S$16.5 billion. Some of the REIT’s notable properties are VivoCity and Mapletree Business City in Singapore, and Festival Walk in Hong Kong.
To gain a deeper understanding of MPACT’s recent performance and future outlook, I attended its recent 2024 annual general meeting. The discussion provided insights into the strategic initiatives management has implemented to sharpen its focus on core assets in Singapore and capitalize on emerging growth segments. These efforts were aimed at strengthening the REIT’s financial position and boosting profitability.
Here are the eight things I learned from the 2024 MPACT AGM.
1. Value of investment properties decreased from S$16.6 billion in 2023 to S$16.5 billion in 2024, this represents a 0.5% decline year-on-year. The slight decrease in valuation was mainly attributed to the strengthening of the Singapore dollar against the weaker currencies of MPACT’s overseas properties. This resulted in a foreign exchange impact to the valuation of -S$274.9 million. This offset the valuation gain in Singapore properties, primarily driven by a strong upward adjustment, with VivoCity alone seeing an increase of S$126.0 million.
2. MPACT’s gross revenue for FY 23/24 grew by 16% to S$958.1 million, up from S$826.2 million the previous year, driven by stronger performance across its Singapore properties and favorable exchange rates. The REIT’s net property income also saw a 15.2% rise, largely attributed to a S$29.5 million boost from its Singapore properties compared to the previous year.
It is also important to note that property operating expenses and utility costs have risen significantly by 18.5% and 51.5%, respectively, primarily due to higher contracted rates and the full-year impact of MPACT’s asset merger. This increase, however, has been partially offset by a one-time refund of prior years’ property taxes, providing some relief to MPACT’s overall expenses.
3. MPACT’s amount available for distribution to unitholders increased by 5.2% year-on-year to S$468.6 million. Despite this, distribution per unit (DPU) declined by 7.3% year-on-year to 8.91 Singapore cents. The increase in the amount available for distribution was driven by the higher net property income earned by MPACT during the fiscal year.
However, several factors weighed down the DPU, where the full-year impact of high utility costs and increased interest rates on existing Singapore and Hong Kong dollar borrowings played a significant role. The sharp increase in net finance cost of 39.0% has also impacted the amount available for distribution to unitholders. Additionally, the stronger Singapore dollar against all foreign currencies adversely affected the DPU. The dilution effect of an enlarged weighted number of units in FY23/24 compared to FY22/23 also further contributed to the decline.
4. Despite a 28.9% decline in share price during FY23/24, the REIT has demonstrated resilience and a strong long-term focus, significantly outperforming the REIT indexes. Since its IPO, MPACT has achieved an 45.5% gain, reflecting its ability to deliver sustained value to its unitholders over time. This long-term growth underscores the REIT’s strategic management and its commitment to navigating market challenges while maintaining a focus on generating stable returns.
During the AGM, management underscored MPACT’s strong operational excellence, highlighting its ability to outperform industry peers, particularly in occupancy rates and rental operations. They acknowledged that the REIT’s current challenges are closely linked to the difficult macroeconomic environment, characterized by high interest rates and a strong Singapore dollar. These factors have created significant headwinds, making it challenging for MPACT to pursue investment opportunities, especially outside of Singapore. Management emphasized that these external conditions have been a key deterrent to capitalizing on potential growth prospects.
5. MPACT has demonstrated astute financial management through well-staggered debt maturities, maintaining strong liquidity reserves, and employing effective structuring to create natural hedges. As at 31 March 2024, MPACT’s gross debt outstanding stands at S$6.8 billion, with an aggregate leverage ratio of 40.5%. The REIT’s management has taken a prudent approach to managing its debt, reflected in its adjusted interest coverage ratio of 2.9 times, which accounts for perpetual securities. This ratio highlights MPACT’s ability to meet its debt obligations as they come due while also mitigating the risks associated with potential future interest rate increases.
The management also ensured that its debt is well distributed with no more than 21% debt due in any financial year. This enables the management to enhance financial stability and improve liquidity management of the REIT.
MPACT also maintains a robust liquidity pool, with S$1.5 billion in cash and undrawn facilities available to address any financial needs that may arise. Management has emphasized a prudent approach to ensuring income stability by employing hedging strategies against interest rate uncertainties. As at 31 March 2024, 77% of MPACT’s gross debt is secured at fixed rates, providing significant protection against fluctuations in interest rates. Additionally, management has effectively hedged income risk by ensuring that 93% of distributable income is either hedged or derived from the Singapore dollar, further reinforcing the REIT’s financial stability.
Management has also strategically executed targeted swaps of HKD loans into CNH, capitalizing on interest rate advantages and risk mitigation. This move, along with the issuance of fixed-rate senior green notes in March 2024, enhances the long-term stability of the REIT. These actions also enable management to maintain a natural hedge by aligning the debt mix with the composition of its assets under management.
These initiatives underscore the robust capital structure and strong liquidity position that MPACT’s management has secured through prudent capital structuring and astute financial management.
6. MPACT’s portfolio remains robust, driven by the management’s operational excellence and ability to sustain healthy occupancy rates and stable rental income across all its markets. The portfolio’s resilience is evident in its occupancy rate, which has increased to 96.1%, up from 95.5% in the previous financial year. This improvement underscores MPACT’s strength in maintaining high occupancy levels and consistent income generation, even amid challenging market conditions.
The REIT has also shown strong performance in sustaining its rental income by maintaining a high number of committed leases and achieving net positive rental reversions across its portfolio. Notably, MPACT has excelled in securing double-digit positive rental reversions for key properties, including VivoCity (Singapore) and The Pinnacle Gangnam (South Korea), with impressive reversions of 14% and 39%, respectively. These successes have contributed to an overall portfolio benefit of a 2.9% positive rental reversion.
Management has also ensured that the portfolio has a well staggered lease expiry profile with a weighted average lease expiry by monthly gross income of 2.4 years across its portfolio. This balanced lease expiry profile helps MPACT to enhance the portfolio’s resilience and be mitigated against tenancy risks.
7. Management proposed the strategic divestment of a non-core asset as part of its long-term strategy. The divestment of Mapletree Anson would enable MPACT to strengthen its capital structure by enhancing its financial liquidity as well as reduce its financial leverage. The divestment would enable MPACT to reduce its aggregate leverage ratio from 40.5% to 37.6% and increase the REIT’s pro forma adjusted interest coverage ratio from 2.9x to 3.3x after the divestment.
Management has indicated that this strategic divestment is designed to optimize financial returns for unitholders. This divestment allows MPACT to secure a gain of S$10 million over the asset’s most recent independent valuation and a total gain of S$95 million from the original purchase price. Additionally, the divestment will expand MPACT’s pro forma debt headroom, providing the REIT with greater flexibility to capitalize on future market opportunities.
Management has emphasised that despite the divestment of Mapletree Anson, MPACT’s Singapore assets would still be substantial contributing about 23% and 58% to the REIT’s assets under management and net property income respectively.
8. A unitholder expressed concerns about MPACT’s properties in China and Hong Kong, citing rising property costs and an increasingly competitive landscape. In response, CEO Sharon Lim emphasized that the REIT has been outperforming its peers in the Chinese market. She highlighted that MPACT’s proactive management strategies have been instrumental in maintaining high occupancy rates and securing key tenant renewals, which are crucial for tapping into China’s long-term economic potential.
Lim further pointed out that, by the end of last year, MPACT’s Chinese properties achieved a combined occupancy rate of 87%, outperforming the broader market. Although market conditions, particularly in Shanghai, remain challenging, he expressed cautious confidence that MPACT’s proactive approach will enable the REIT to navigate these difficulties and continue delivering solid performance.
The fifth perspective
MPACT REIT boasts a well-diversified portfolio with strong exposure across key Asian markets, including Singapore, China, Japan, Hong Kong, and South Korea. While the current macroeconomic environment, marked by high interest rates and currency volatility, poses challenges, MPACT’s focus on prime assets and strategic markets ensures resilience and potential for long-term growth. The REIT’s proactive asset management and prudent financial strategies, such as securing fixed-rate debt and strategic divestments, provide stability in uncertain times. Though short-term headwinds may slow growth, MPACT looks well-positioned to navigate these challenges and continue delivering value to its unitholders.
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