Mapletree Pan Asia Commercial Trust – Is it as good as MCT?

TL;DR

• Mapletree Pan Asia Commercial Trust (MPACT) is formed from the merger of Mapletree Commercial Trust (MCT) and Mapletree North Asia Commercial Trust (MNACT). It owns retail and office assets across Singapore, Hong Kong, China, Japan and South Korea.
• With the easing of Covid-19 measures in Hong Kong late April and early May, tenant sales at Festival Walk fell by just 1.1% YoY in 2Q22. MPACT’s assets in China have been resilient, with rental reversions staying positive in 2Q22. 
• Vivocity continues to be MPACT’s crown jewel as tenant sales have recovered to above pre-COVID levels. This helped to drive a 45% increase in NPI in 2Q22 compared to the previous year. 
• MPACT offers a dividend yield of 5.2%. We’d be looking out for whether Hong Kong will ease its restrictions further in the months ahead.

What happened?

If you were a shareholder of Mapletree Commercial Trust (MCT), you might have realized that your units are now in Mapletree Pan Asia Commercial Trust (MPACT) now. 

This came about from the completion of the merger between MCT and Mapletree North Asia Commercial Trust (MNACT).

We shared about the background of the merger and whether you should take up the preferential offering as a MCT unitholder earlier. 

Following the merger, MPACT is now one of the top 10 REITs in Asia by market capitalization.

Anchored by Vivocity and Mapletree Business City (MBC) in Singapore, MPACT has a portfolio of 18 properties across five key markets. 

Together, Vivocity and MBC contribute about 46% of its Net Property Income (NPI) in the quarter ending June 2022. 

Its other major asset is Festival Walk mall in Hong Kong which contributed about 21% of its NPI. China and Japan properties contributed about 12% and 10% of its NPI respective

If you are not familiar with these overseas assets, let’s take a look at how they performed in the recent quarter (1Q FY22/23)

What we learnt from its recent results

#1 - Festival Walk showing signs of stabilization

With the strict Covid-19 restrictions which continue to be in place in Hong Kong, there are naturally concerns about the performance of the Festival Walk mall. 

Festival walk is one of the largest malls in Hong Kong located in the area of Kowloon Tong. It is home to over 200 brands and over 40 F&B outlets. 

With the tighter social distancing measures and dine-in bans imposed since the start of 2022, shopper traffic and tenant sales have been impacted. 

Tenant sales at Festival Walk fell by 27.5% in January to March 2022 compared to the previous year. Thankfully, with the easing of measures in late April and early May, tenant sales fell by just 1.1% in 2Q22. 

Rental reversions also moderated to just negative 7% in the recent quarter, following two years of steep declines of more than 20% per year. 

Encouragingly, Hong Kong has reduced the quarantine period for inbound travellers to 3 days from 7 days previously. 

There are also reports that Hong Kong might be looking to end hotel quarantine by November. The further easing of Covid measures could potentially provide a further boost to tenant sales. 

#2 - Assets in China fairly resilient

Investors might also be concerned about MPACT’s assets in China, given the strict Covid-19 restrictions and occasional lockdowns across various cities. 

MPACT’s Sandhill Plaza in Shanghai still managed to achieve a +3% average rental reversion in 1Q FY22/23 despite the citywide shutdown from March to May. 

Its occupancy remained high at 98.9% as of June 2022, compared to 98.6% as of March 2022. 

Likewise, MPACT’s Gateway Plaza asset in Beijing achieved a +11% average rental reversion in 1Q FY22/23. 

This was because the rent of one of the two expired leases was at a low base as it was signed during the height of COVID-19 in 2020. Both new tenants are from the technology and financial services sectors. 

On a more negative note, the occupancy of Gateway Plaza fell to 92.8% from 94.3% at March. The comfort here is that new office supply in 2022 is expected to remain low, which might prevent vacancy rates from falling further. 

#3 – Singapore recovery on track

As an investor in MPACT, one of the key things you’d be looking out for is the performance of Vivocity. 

Vivocity saw continued recovery momentum as COVID-19 measures continue to be eased in Singapore. 

What we were most impressed by is that tenant sales at Vivocity reached S$248 million in 1Q FY22/23, exceeding where it was prior to the pandemic. 

This is despite shopper traffic of 9.1 million still being lower than the 13.1 million shoppers that visited the mall in 1Q FY19/20 (pre-COVID).

As a result, net property income (NPI) from Vivocity rose sharply to S$ 42.9 million in 1Q FY22/23, a 45% increase compared to the previous year. 

With the Covid-19 restrictions further relaxed recently and inbound tourists recovering sharply, Vivocity could continue to see an increase in shopper traffic and tenant sales in the coming quarters. 

What would Beansprout do? 

With the economic outlook remaining uncertain, many investors continue to look at REITs as a safe place to hide. 

Prior to the merger with MNACT, many investors would have seen MCT as a beneficiary of the recovery in retail and office markets in Singapore. 

With close to half of MPACT’s net property income coming from regional markets such as Hong Kong, China and Japan now, investors have expressed concerned about the prospects of the assets there. 

Thankfully, the recent results have shown that tenant sales at Festival Walk in Hong Kong appear to be stabilizing, while its office assets in China are still fairly resilient. 

For these investor concerns to ease, we’d be looking out for whether Hong Kong will ease its restrictions further in the months ahead.

If you’re looking for a more defensive REIT to hold in the meantime, it might be worth looking at Ascendas REIT,  which also offers a dividend yield of close to 5.2%.