Mapletree Pan Asia Commercial Trust (MPACT) released its 3Q FY2024 earnings on 29 Jan 2024. MPACT put up a disappointing performance for the quarter with a decline in DPU amid higher finance costs.

MPACT share price has declined by 19.65% in a year despite many bloggers and investors raving about this REIT. Year to date the share price has also declined by 9.74% underperforming the FTSE REIT index which decline by 7%.

Here are 4 things investors need to be wary about MPACT.

DPU decline in 3Q FY23/24

MPACT reported 9.1% decline in DPU to 2.20 cents from 2.42 cents in 3Q FY23/24. DPU was impacted by higher net finance costs due to increased interest rates, higher utility costs and unfavourable foreign exchange against SGD.

Deteriorating operating metrics

Even though MPACT managed to maintained a high occupancy of 96.7% across its portfolio, its China properties is a cause for concern. Its China properties only managed to have occupancy of 89.6%.

In addition, the tenant retention rate is low at 77.3% indicating many tenants are not renewing their leases. Even though the portfolio’s overall rental reversion came in positive at 4.1%, red flags are showing up in the negative rental reversion of Festival Walk, China properties and the Japan properties

Deteriorating Balance Sheet Strength

MPACT gearing ratio has increased to 40.8% from 40.7% compared to the previous quarter while cost of debt also maintained relatively high level at 3.33%. Furthermore, NAV has decline to S$1.73 from S$1.76 in the previous quarter.

Challenging future outlook

The retail sector will face challenges including persisting inflationary pressures and high operating costs in 2024. In addition, due to China economic downturn, there were lesser China tourists visiting Hong Kong which will have an adverse impact on Festival Walk.

Another point to note is that there will be significant new supply of business parks in Singapore in the next few years which may lead to higher vacancies.

MPACT’s China office properties is another concern. The overall office vacancy rate reached a 10-year high of 19.8% in 4Q 2023, mainly due to new supply and slower pre-leasing of development projects.

High vacancies have continued to put pressure on overall rents in Beijing, which saw rents dropping 3.2% qoq in 4Q 2023.

Conclusion

I presented the negative aspects of MPACT so as to give investors a balance view of MPACT and not be blindsided by bloggers and analysts. Investors should not look back at the past performance of Mapletree Commercial Trust (MCT). MPACT is no longer the MCT we once knew.

In fact, MPACT share price has underperform ever since the merger between Mapletree Commercial Trust and Mapletree North Asia Commercial Trust despite the management then presented a rosy picture of the merger.

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