MPACT Earnings: Cutting Fair Value by 5% on Lower Rental Growth Assumption in Hong Kong and China

We lowered our fair value estimate of Mapletree Pan Asia Commercial Trust N2IU, or MPACT, to SGD 1.74 from SGD 1.82 after second-quarter fiscal 2024 (ending March) results came in slightly below our expectations. The miss is due to currency headwinds and lower-than-expected contribution from Festival Walk. We trimmed our rental growth assumption on Festival Walk and its China office portfolio, given the slower-than-expected retail recovery in Hong Kong and the weaker office market outlook in China. As a result, our distribution per unit forecasts for fiscal 2024, 2025, and 2026 are reduced by 1.5%, 3.6%, and 4.6%, respectively. Based on the last closing price of SGD 1.30, we think the units are undervalued and trade at an attractive fiscal 2024 dividend yield of 6.7%.

The trust’s portfolio occupancy rate improved to 96.3% this quarter from 95.7% in the previous quarter driven by higher occupancies at its Singapore, Hong Kong, and China properties. The trust’s Singapore portfolio was robust, with strong tenant retention rates of 99.4% and 84.0%, respectively, for Mapletree Business City and its other Singapore office properties. Rental reversion has also been strong, coming in at positive 7.1% for Mapletree Business City and positive 9.0% for its other Singapore office properties. The trust also made positive progress in renewing the lease of its top tenant, Google. Although MPACT expects to take back some space, the overall impact should be minimal. Looking ahead, we anticipate the trust to face some competition from the upcoming Labrador Tower development that will add significant office supply in the Labrador submarket where the trust owns several office assets. Nevertheless, we expect the trust’s high-quality assets in the area to remain competitive and foresee the retail component to marginally benefit from influx of new office occupiers.