Call it a merger of two REIT titans if you will.
Earlier this year, both Mapletree Commercial Trust (MCT) and Mapletree North Asia Commercial Trust (MNACT) announced a mega S$4.2 billion merger.
The new entity that was created by this marriage was named Mapletree Pan Asia Commercial Trust (SGX: N2IU), or MPACT.
It’s only been two years since a REIT mega-merger was announced between two CapitaLand entities to form CapitaLand Integrated Commercial Trust (SGX: C38U).
Naturally, investors will be curious to know if this merger bodes well for MPACT.
In particular, income-seeking investors are asking if the new entity can continue to grow its distribution per unit (DPU).
Unlike its predecessors that had a track record to scrutinise, MPACT is starting as a newly-merged REIT on a clean slate.
Let’s dig deeper to determine if the REIT has what it takes to pay out higher dividends over time.
Encouraging signs
There are early signs that the merger has benefitted the REIT.
MPACT announced its maiden set of earnings for its fiscal 2023’s first half (1H2023) slightly more than a month ago.
Both revenue and net property income (NPI) shot up strongly year on year, while DPU climbed by 12.5% year on year to S$0.0494.
Another positive piece of news is China finally easing some of its strict COVID-zero policies amid an economic slowdown and public frustration.
In Beijing, COVID-19 testing booths will be removed while in Shenzhen, commuters are no longer required to present their test results to travel.
Both China and Hong Kong contributed 18% to MPACT’s revenue and NPI for 1H2023.
The REIT’s key shopping mall in Hong Kong, Festival Walk, has also witnessed a slight dip in shopper traffic and tenant sales because of the strict protocols.
This easing is sweet music to investors’ ears as MPACT’s Chinese properties should start contributing better numbers in the coming quarters.
Anchored by a strong sponsor
Another plus point is that MPACT has a strong sponsor in Mapletree Investments Pte Ltd (MIPL).
As of 31 March 2022, MIPL owns and manages S$78.7 billion of real estate assets spanning a wide range of sub-sectors such as retail, logistics, commercial, and data centres.
MPACT can tap into its sponsor’s portfolio to enjoy a strong pipeline of potential acquisitions to grow both its asset base and DPU.
The merger of MCT and MNACT also increased the combined REIT’s debt funding capacity and headroom for asset enhancement initiatives and property development.
MPACT has around S$1.3 billion in available liquidity to tap on for yield-accretive acquisitions and recently established a S$5 billion Euro medium-term securities programme to improve its funding diversification.
The portfolio also continues to enjoy a high occupancy rate of 96.9% as of 30 September 2022 along with a positive rental reversion of 1.1%.
Tapping on the “4R” strategy
MPACT’s manager also intends to tap on its “4R” asset and capital management strategy to grow the REIT’s DPU.
The 4 “Rs” stand for recharge, resilience, refocus, and reconstitute.
Singapore, being a core market for MPACT, acts as a resilient base of high-quality properties that will anchor the REIT against the upcoming economic storm.
For China and Hong Kong, the manager wants to ride on the recovery and stabilise the Festiva Walk asset before considering further expansion.
With regard to office and business park assets in China, the REIT will focus on maintaining high occupancy levels to stabilise NPI.
South Korea has been targeted as a country with favourable market dynamics that makes it ideal for expansion.
Finally, Japan is where MPACT will rebalance its portfolio by scouting for suitable capital recycling opportunities to unlock value through strategic divestments.
Get Smart: A high chance of success
The path ahead is not all smooth-sailing.
But with a strong sponsor in place along with an experienced REIT manager, there is a high chance of MPACT succeeding.
MPACT can also engage in larger transactions because of its enlarged size which was not possible when it was trading as two smaller REITs.
Management has articulated a clear strategy on how it will proceed, and the stars are slowly aligning for the REIT to deliver a better result.
It may take a while for the dark clouds to lift over some of MPACT’s assets, but the REIT should find itself firing on all cylinders in due course.
There is a strong likelihood that MPACT’s DPU can continue its upward trend, though investors will need to be patient.
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Disclaimer: Royston Yang does not own shares in any of the companies mentioned.
