Mapletree Pan Asia Commercial Trust

Excerpts from UOBKayHian report

Mapletree Pan Asia Commercial Trust (SGX: N2IU)

• The merger to form Mapletree Pan Asia Commercial Trust (MPACT) 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.
• MPACT benefits from the twin engines of recovery in Singapore and North Asia (Hong Kong and Mainland China)

Maintain BUY. Target price: S$2.22.

Mapletree Pan Asia Commercial Trust 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.

Valuation/Recommendation

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 the  merger and 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 he Greater Southern Waterfront and rejuvenation of Sentosa Island and Pulau Brani.

You can find the full report here and the company website here