Mapletree Pan Asia Commercial Trust - UOB Kay Hian 2022-09-06: Stronger Together – Gaining Scale & Diversification

MAPLETREE PANASIA COM TRUST (SGX:N2IU)

Mapletree Pan Asia Commercial Trust - Stronger Together – Gaining Scale & Diversification

The merger of Mapletree Commercial Trust with Mapletree North Asia Commercial Trust 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.

Mapletree Pan Asia Commercial Trust (SGX:N2IU) benefits from the twin engines of recovery in Singapore and North Asia (Hong Kong and Mainland China).

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.
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.

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.
Shanghai has emerged from the city-wide lockdown that lasted from end-March to end-May. Leasing activities have recovered in June.
- Sandhill Plaza achieved positive rental reversion of 3% in 1QFY23. Occupancy remains high at 98.9%. According to CBRE, rents for business parks in Shanghai increased 3.2% y-o-y to RMB138.70/sqm/month in 2Q22.
- Sandhill Plaza is located at Zhangjiang Science City in Shanghai’s Pudong New Area, which is also known as Silicon Valley of the East. The Zhangjiang sub-market will see a large volume of new business park space in 2H22. Fortunately, Sandhill Plaza accounted for only 3.1% of Mapletree Pan Asia Commercial Trust’s portfolio valuation post-merger.

Safe distancing between individuals, both indoors or outdoors, and the cap on group size of 10 persons for dining in at F&B establishments was lifted since 26 Apr 22.
- VivoCity benefitted as tenant sales surged 53% y-o-y and 11% q-o-q and exceeded pre-pandemic levels in 1QFY23. Committed occupancy remains high at 98.5% as of Jun 22. NPI from VivoCity have rebounded 45% y-o-y and 19% q-o-q due to the easing of COVID-19-related restrictions and lower rental rebates. VivoCity benefits from the return of tourists starting 2H22 as they typically account for 20-30% of shopper traffic prior to the COVID-19 pandemic.
- NPI from Mapletree Business City (MBC) also grew 5.9% y-o-y and 4.9% q-o-q in 1QFY23. Committed occupancy was 98.2%. Management sees leasing interest from pharmaceutical and biomedical companies expanding their R&D and laboratory facilities within City Fringe. It also observed less downsizing by banks during lease renewal. Google, the largest tenant at MBC accounting for 25% of gross rental income, has completed construction of its third data centre and is becoming more entrenched in Singapore.

Refer to the summary of Mapletree Commercial Trust with Mapletree North Asia Commercial Trust's 1QFY23 business update in report attached below. The trust scheme for merger of Mapletree Commercial Trust with Mapletree North Asia Commercial Trust to establish Mapletree Pan Asia Commercial Trust became effective on 21 Jul 22 and Mapletree North Asia Commercial Trust was delisted on 3 Aug 22.
Mapletree Pan Asia Commercial Trust holds a diversified portfolio of 18 high quality commercial properties across Singapore, Hong Kong, Mainland China, Japan and South Korea. AUM has expanded by 94% to a combined S$17.1b.
Maintain BUY recommendation on Mapletree Pan Asia Commercial Trust with DDM-based target price (cost of equity: 7.0%, terminal growth: 2.2%). We kept our DPU forecast for Mapletree Pan Asia Commercial Trust relatively unchanged.

Jonathan KOH CFA UOB Kay Hian Research | https://research.uobkayhian.com/ 2022-09-06

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