Mapletree Pan Asia Commercial Trust (SGX:N2IU), or MPACT for short, is a retail and office REIT where it invests in properties used for retail and/or office purposes in key gateway cities in Asia – including Singapore, Hong Kong, China, Japan, and South Korea. The REIT is also a constituent of Singapore’s benchmark Straits Times Index (STI) since September 2019.

Earlier this afternoon, the blue-chip REIT conducted its 12th annual general meeting (AGM) for the financial year ended 31 March 2023 (i.e., FY2022/23), which I have attended virtually as a unitholder – I appreciate the REIT for not only making this option available, but also allowing unitholders who choose to attend the meeting virtually to cast their votes in real-time, as well as submit any questions to the management they may have via text.

For the benefit of those who aren’t able to attend the meeting, you can find my summary of the presentation made by the REIT’s CEO Ms Sharon Lim and CFO Ms Janica Tan, responses to questions posed by fellow AGM attendees (both in-person, as well as online), as well as results of the 3 resolutions put to vote during the meeting.

Let’s begin:

Presentation by Mapletree Pan Asia Commercial Trust’s CEO and CFO

Financial Performance:

• Despite headwinds from the aftermath of Covid, persistently high inflation leading to the current high interest rate environment, and geopolitical tensions, the REIT still manage to deliver a steady performance in its maiden set of results post-merger, with its gross revenue climbing by 65.4% to S$826.2m (FY2021/22: S$499.5m), driven by the properties from Mapletree North Asia Commercial Trust following the completion of the merger in July 2022, as well as contributions from its core assets in VivoCity and Mapletree Business City.
• Distribution Per Unit went up by 6.1% from 9.06 cents/unit in the previous financial year to 9.61 cents/unit in the current financial year under review.
• In terms of revenue contribution by geographical location, Singapore contains to contribute the biggest share towards its gross revenue, at 65%, followed by Hong Kong (at 18%), China (at 8%), Japan (8%), and South Korea (1%). Moving forward, Singapore remains as the anchor to provide stability to the REIT’s portfolio.

Performance of Individual Properties:

• VivoCity: Tenant sales at a new record of over S$1 billion in the financial year, well surpassing pre-Covid levels; Asset enhancement initiative works in level 1 completed in May 2023, and set to deliver over 20% of return on investment; Portfolio occupancy remains at a high of 99.1% despite asset enhancement initiative works of close to 6 months, with rental reversion at an impressive level of +7.7%.
• Mapletree Business City: Portfolio occupancy fell from 97.2% as at 31 March 2022 to 95.4% as at 31 March 2023, due to the non-renewal of tenant to relocate overseas; Regardless, occupancy remains at a healthy rate; Rental reversion of +8.0% was achieved, and among the leases renewed came from big tenants such as Google and Samsung.
• Other Singapore Properties: At 95.9%, and of notable mention was the renewal of leases at Bank of America Harbourfront; Rental reversion was at +1.6%.
• Festival Walk (Hong Kong): Despite facing challenges relating to Covid, the REIT still managed to secure the renewal of the lease of a major tenant in Arup, removing occupancy risk at its office spaces; Committed occupancy was at 99.6%; While rental reversion for the financial year under review was at -12.7%, but positive indicators were seen in shopper traffic (up 16.0% compared to last year) and tenant sales (up 9.3% compared to last year); Efforts have been made to refine trade mix to have more lifestyle tenants, and strengthen the mall’s positioning.
• China Properties: Key highlight being the renewal of the 2nd largest tenant in BMW in Gateway Plaza; While adjustment of spaces by companies in the country is expected, but Ms Lim expressed her confidence on the demand for office spaces in the 2 properties.
• Japan Properties: Stable operating metrics, with its occupancy at 97.5%, and a rental reversion of +1.9%.
• The Pinnacle Gangnam (South Korea): Strong performance, with occupancy at 99.3%, and a rental reversion of +14.2%, underpinned by favourable market conditions due to limited supply.

Capital Management:

• Aggregate leverage remains healthy at 40.9% – at this level, there remains a S$3.1 billion of debt headroom to the regulatory limit of 50.0%; Also, valuation of the REIT’s properties have to decline by 8.7% (or S$3.1 billion) in order for aggregate leverage to reach 50.0%.
• Percentage of borrowings at fixed rate is at 75.5%, and moving forward, the REIT will continue to maintain it at above 70.0% to mitigate any impacts relating to the rising interest rate environment.
• With 25% of borrowings unhedged, every 50 basis point change in benchmark rates is estimated to impact distribution per unit by 0.16 cents per annum, assuming all the other variables remain constant.
• Weighted average all-in cost of debt is at 2.68%, and is expected to climb further if borrowing costs continue to be high.
• On debt maturity, there are no more than 22% of borrowings due in any financial year, and there remains approximately S$1.6 billion of available liquidity to meet working capital and financial obligations.
• Moving forward, the REIT will continue to safeguard its capital structure, diversifying its capital sources, as well as maintain discipline and vigilance in managing its capital.

Sustainability Efforts:

• Initiating efforts to decarbonise all of its operations to achieve ‘Net Zero by 2050’.
• Approximately 85% of its portfolio (by lettable area) have achieved good to excellent green certifications, with plans for the entire portfolio to be green-certified by FY2024/25.

Looking Ahead:

• The REIT remains ready to capture the market in Asia.
• Despite of headwinds in China at the moment, there is still a huge market in the country.
• Hong Kong continues to be a recovery story for the REIT.
• Japan and South Korea continues to have growth potential.
• Moving forward, the REIT will continue to create value through its ‘4R’ (Recharge, Refocus, Reconstitute, and Resilience) asset and capital management strategy, with their focus on office and office-like business parks that are NPI (Net Property Income), DPU (Distribution Per Unit), and NAV (Net Asset Value) accretive.

Responses to Questions Raised during the AGM

• A unitholder expressed concerns about the jump in the REIT’s aggregate leverage in the financial year under review (40.9%) compared to last year (33.5%) in light of the current rising interest rate environment. To which, Ms Tan explained that the aggregate leverage recorded last year was before the merger. Following the completion of the merger in July 2022, the growth in the REIT’s asset base have led to its aggregate leverage to grow in tandem. This is in addition to the REIT taking on $436m of borrowings to fund the merger.
• On a question relating to the performance of the 2 properties in China, namely Sandhill Plaza in Shanghai and Gateway Plaza in Beijing, Ms Lim acknowledged that while there is a slight drop in its occupancy (down to 86.5% in the current financial year compared to 95.9% a year ago), it is still at a high level. As for the negative rental reversion (at -3.7% for the financial year under review), Ms Lim was the opinion that it is always better to retain the tenants (even though lease renewals are at a slightly lower rate) than to incur downtime in terms of vacancy and fit out period. She added that the REIT’s renewal of a key tenant in BMW in Gateway Plaza removed a huge income risk for the property.
• Another unitholder wanted to know of the breakdown of rental reversion of the 2 properties in China, to which Ms Lim shared that for Sandhill Plaza, it was flattish in terms of rental reversions. However, for Gateway Plaza, the rental reversion was about -4%/. As such, the overall rental reversion for the 2 China offices averaged at about -3.7%, which were within expectations.
• With foreign currencies which the REIT has properties in were all weaker compared to the Singapore Dollar (which the REIT reports its financial results, and pays out distributions in), a unitholder wanted to know how the REIT mitigates risks associated with it. In response, Ms Tan said foreign currency risks are managed through natural and forward hedges. On top of that, the REIT is also trying to secure borrowings in the same currency which the properties are located, so as to provide a natural hedge. Also, a large percentage of overseas income has been hedged to the Singapore Dollar through forward contracts to safeguard income stream.
• A unitholder wanted to know if the merger with Mapletree North Asia Commercial Trust was ‘badly timed’. To which, CEO Mr Samuel Tsien acknowledged that following the merger, the operating environment have turned negative (resulting from the war in Ukraine, high inflationary environment and a series of aggressive interest rate hikes that followed to bring down inflation, and rising energy costs), but he stressed the need to think long-term, and is confident that the properties continue to provide a good growth potential for the REIT in the years ahead, as they are located in big cities.
• Responding to a unitholder’s concerns about the continued negative rental reversion recorded in Festival Walk, Ms Lim said while rental reversions have continued to remain negative, but it has improved from -30+% to -12.7% in the current financial year under review. She added that some of the leases were renewed during the peak of the Covid pandemic, and hence they were at lower rates. However, with Hong Kong having removed the Covid restrictions recently, she remain cautiously optimistic that this, along with returning of China visitors, will boost shopper traffic and tenant sales. However, she cautioned the need to be patient, as full recovery will not happen overnight.
• On a question asking about the REIT’s acquisition plans moving forward, Ms Lim said the preference is towards office and office-like business park properties over retail properties, unless or otherwise the office property comes with a retail component. In terms of geography, Ms Lim said the REIT’s preference is to stay in the existing markets (Singapore, Hong Kong, China, Japan, and South Korea), as going into a new market is very manpower and capital intensive.
• Responding to separate questions on the REIT’s target aggregate leverage level, and also a possible reduction in the percentage of borrowings hedged to fixed rates, Ms Lim said the REIT aims to maintain an aggregate leverage of approximately 40.0%. On the hedging of borrowings to fixed rates, Ms Tan said the REIT aims to maintain it around 70% at all times.
• Finally, a unitholder wanted to know if the REIT have plans to divest the 2 office assets in China, Ms Lim said currently, the REIT does not have any active plans to divest any of the assets in its portfolio. She added that the REIT’s management conducts a yearly exercise to review its properties, and at this juncture, the assets in China remains stable, and the REIT will continue to keep them.

Results of 3 Resolutions Put to Vote during the Meeting

• Resolution 1, which is to receive and adopt the Trustee’s Report, the Manager’s Statement, the Audited Financial Statements of MPACT for the financial year ended 31 March 2023 and the Auditor’s Report thereon, was passed with 99.95% of the votes for, and 0.05% of the votes against.
• Resolution 2, which is to re-appoint PricewaterhouseCoopers LLP as the Auditor of MPACT and to authorise the Manager to fix the Auditor’s renumeration, was passed with 99.72% of the votes for, and 0.28% of the votes against.
• Resolution 3, which is to authorise the Manager to issue Units and to make or grant instruments convertible into Units, was passed with 97.48% of the votes for, and 2.52% of the votes against.

Related Documents

• AGM Presentation Slides
• Responses to Questions Submitted by Unitholders before the AGM

Disclaimer: At the time of writing, I am a unitholder of Mapletree Pan Asia Commercial Trust.

Launch Event for My First Book: building your REIT-irement portfolio

After months of hard work, my first book, 'Building Your REIT-irement portfolio' is finally ready! In this easy-to-follow 178-page guide, you'll learn everything you need to know about building a REIT portfolio that can provide for you in your retirement years. You can check out a preview of the book here.

I'm extremely thankful to the team at InvestingNote and ShareInvestor for their help to organise a book launch event for me on Tuesday, 26th September 2023, from 6:00pm to 8:00pm at their office in New Tech Park.

For more details and to RSVP (seats are extremely limited), click on the link below:

Click here for more details on the book launch event and RSVP here...