Brokers’ take: Morningstar initiates Mapletree Pan Asia Commercial Trust with S$1.82 fair value estimate

MORNINGSTAR Equity Research has initiated coverage on Mapletree Pan Asia Commercial Trust (MPACT) with a fair value estimate of S$1.82 and a no-moat rating. It believes the trust is “fairly valued” at current prices and has priced in near-term growth driven by the merger with Mapletree North Asia Commercial Trust (MNACT).

The research house on Monday (Aug 8) forecasted MPACT’s revenue and net property income to grow at a 5-year compound annual growth rate (CAGR) of 19.5 and 19.6 per cent respectively, taking the merger with MNACT into account.

Analyst Xavier Lee noted that both MPACT’s retail malls — Vivocity and Festival Walk — had maintained close to 100 per cent occupancy rates every year, even during the pandemic, as well as register positive rental reversions for most years.

“Both malls are close to mass transport hubs helping to generate a high volume of shopper footfall and to drive sales growth for its tenant base,” Lee said.

Further, the trust’s office properties, while largely located outside of the central business district, are of high quality, well-supported by amenities and connected to key transport networks, he added.

Lee expects rental income from its offices to grow steadily, supported by fixed annual rental escalations of between 2 and 3 per cent as well as relatively high occupancy rate of around 97 per cent.

Even though market rents in the office segment are expected to remain under pressure in the near term, the analyst thinks the sector is due to recover in 2024 as Covid-19 restrictions lift and Singapore and Hong Kong both re-open its borders.

Morningstar was however less upbeat on the trust’s office properties in China, given their geographical position in areas that are experiencing high vacancy rates of above 10 per cent — which could weigh down its rents.

“We expect near-term rents to remain flat until the excess supply is absorbed,” said Lee.

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He predicted that distribution per unit for the trust would grow at a CAGR of 2.7 per cent over the next 5 years, slower than its 10-year historic CAGR of 4.4 per cent due to higher borrowing costs from rising interest rates.

Units of MPACT last traded at S$1.92, 0.5 per cent or S$0.01 lower as at the midday trading break on Wednesday.