Mapletree Pan Asia Commercial Trust - Stronger Together – Gaining Scale & Diversification

Date: 06/09/2022

Source  :  UOB KayHian
Stock  :  Mapletree PanAsia Com Tr       Price Target  :  2.22      |      Price Call  :  BUY
        Last Price  :  1.77      |      Upside/Downside  :  +0.45 (25.42%)

The merger with MNACT was executed and completed at an opportune timing. Festival Walk benefitted from the easing of restrictions in Apr 22 and recovery would be further strengthened if Hong Kong ends hotel quarantine requirements as targeted by Nov 22. Gateway Plaza has weathered the localised lockdown in Beijing and registered positive rental reversion of 11% in 1QFY23. MPACT has doubled in size and become more geographically diversified. Maintain BUY. Target price: S$2.22.


  • Mapletree Commercial Trust (MCT) benefits from the twin engines of recovery in Singapore and North Asia (Hong Kong and Mainland China):
  • Festival Walk benefits from easing of restrictions. Hong Kong has gradually recovered from disruptions caused by the Omicron variant. Face-to-face classes at kindergartens and schools resumed and restaurants reopened with group size capped at four starting Apr 22. Social distancing measures further eased with the doubling of diners to eight per table since May 22. Negative rental reversion at Festival Walk moderated to -7% in 1QFY23 after two consecutive years of steep declines (FY21: -21% and FY22: -27%). Rental relief granted was almost non-existent at S$0.2m in 1QFY23 (FY21: S$49.8m and FY22: S$14.7m). Consumer spending was stimulated by the first round of consumption vouchers disbursed in April and the second round in August.
  • Potential boost from reopening of borders. Hong Kong has cut the quarantine period for inbound travellers from seven to three days with effect from 12 Aug 22. During the subsequent four-day surveillance period, visitors could take public transport, shop and also work although entry to high-risk places is prohibited. Chief Executive John Lee sees the resumption of regular flow of visitors between Hong Kong and Mainland China on a quarantine-free basis as one of his top priorities. Mainland visitors accounted for about 25% of retail sales in Hong Kong before the COVID-19 pandemic. Hong Kong targets to end hotel quarantine by Nov 22, after the 20th Communist Party Congress but ahead of HKIB Banking Conference and Hong Kong Sevens ruby tournament.
  • Gateway Plaza and Sandhill Plaza registered positive rental reversion. Beijing weathered localised lockdown in 1QFY23, which reduced the number of employees returning to work in their offices. Nevertheless, Gateway Plaza achieved positive rental reversion of 11% due to two new tenants from the technology and financial services sectors. Occupancy was stable at 92.8%. One new office building was completed in the Lufthansa sub-market in 1Q22 and supply-side pressure is expected to ease in 2H22. Gateway Plaza will benefit as the Chinese government plans to develop Beijing into a global wealth management centre.
  • Shanghai recovering from lockdown. Shanghai has emerged from the city-wide lockdown that lasted from end-March to end-May. Leasing activities have recovered in June. Sandhill Plaza achieved positive rental reversion of 3% in 1QFY23. Occupancy remains high at 98.9%. According to CBRE, rents for business parks in Shanghai increased 3.2% yoy to Rmb138.70/sqm/month in 2Q22. Sandhill Plaza is located at Zhangjiang Science City in Shanghai’s Pudong New Area, which is also known as Silicon Valley of the East. The Zhangjiang sub-market will see a large volume of new business park space in 2H22. Fortunately, Sandhill Plaza accounted for only 3.1% of MPACT’s portfolio valuation postmerger.
  • Singapore: Reopening propels recovery. Safe distancing between individuals, both indoors or outdoors, and the cap on group size of 10 persons for dining in at F&B establishments was lifted since 26 Apr 22. VivoCity benefitted as tenant sales surged 53% yoy and 11% qoq and exceeded pre-pandemic levels in 1QFY23. Committed occupancy remains high at 98.5% as of Jun 22. NPI from VivoCity have rebounded 45% yoy and 19% qoq due to the easing of COVID-19-related restrictions and lower rental rebates. VivoCity benefits from the return of tourists starting 2H22 as they typically account for 20-30% of shopper traffic prior to the COVID-19 pandemic.
  • NPI from MBC also grew 5.9% yoy and 4.9% qoq in 1QFY23. Committed occupancy was 98.2%. Management sees leasing interest from pharmaceutical and biomedical companies expanding their R&D and laboratory facilities within City Fringe. It also observed less downsizing by banks during lease renewal. Google, the largest tenant at MBC accounting for 25% of gross rental income, has completed construction of its third data centre and is becoming more entrenched in Singapore.


  • Gaining scale and diversification. The trust scheme for merger of MCT and MNACT to establish MPACT became effective on 21 Jul 22 and MNACT was delisted on 3 Aug 22. MPACT holds a diversified portfolio of 18 high quality commercial properties across Singapore, Hong Kong, Mainland China, Japan and South Korea. AUM has expanded by 94% to a combined S$17.1b.


  • We kept our DPU forecast relatively unchanged.


  • Maintain BUY. Our target price of S$2.22 is based on DDM (cost of equity: 7.0%, terminal growth: 2.2%).


  • DPU accretion of 8.9% from merger with MNACT. Potential expansion in China and South Korea.
  • MPACT has five properties located in the HarbourFront area, which accounted for 48.4% of its portfolio valuation in aggregate. It will benefit from the development of the Greater Southern Waterfront and rejuvenation of Sentosa Island and Pulau Brani.

Source: UOB Kayhian Research - 6 Sept 2022

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