Hey savvy investors! Today’s post is one I never thought I’d make, because I’m seriously reconsidering my position in Mapletree Pan Asia Commercial Trust or MPACT. Viewers of ‘The Dividend Uncle’ will know that I’ve been a supporter of MPACT through thick and thin, but especially through the slumps, always looking for positives.
For sure, I love VivoCity. It’s one of Singapore’s best-performing malls, with an almost perfect occupancy rate of 99.9% and strong rental reversions of 16.9% as at end-December 2024. In addition, personally I love the tenant mix – all kinds of food options, be it Japanese, Western or cafes just to chill; there are what I’d consider hip shopping options, and more importantly, it’s the hub for everyone who’s visiting Resort World Sentosa. Now, if MPACT were just VivoCity, I’d probably be buying more right now, and holding on forever.
But unfortunately, MPACT is not just VivoCity. And the problem is, the rest of its portfolio is dragging it down so much.
So today, I want to explore not just why MPACT looks so cheap right now, but also what if it’s likely to remain cheap for a longer time to come. I’ll go through the biggest red flags in its portfolio, including a review of the performance of Festival Walk and its overseas properties, and explain my updated position on MPACT. In fact, I would like to explore whether it can even continue to be considered a ‘blue-chip’ REIT.
Before we dive in, just a quick reminder that this post is for informational purposes only and not financial advice. Always consult a licensed financial adviser before making any investment decisions. Yes, I hold MPACT in my portfolio, but what works for me may not work for you.
Alright, let’s get started.
MPACT Looks Real Cheap, But Is It Telling Us Something
At first glance, MPACT looks too cheap to ignore. With a Price-to-Net Asset Value or N.A.V. of just 0.7, it’s one of the lowest among large-cap Singapore REITs. Compare this to other blue-chip REITs like CapitaLand Integrated Commercial Trust at 0.91, and Frasers Centrepoint Trust at 0.93, the difference is stark. (Refer to the S-REITs Data & Comparisons from REIT-tirement.com here.)
In addition, the dividend yield is almost 7%, which on all accounts looks very attractive. This high dividend yield puts it on par with riskier and much smaller REITs like Lendlease Global Commercial REIT and OUE Commercial REIT. Usually, as a rational investor, we would require lower Price-to-N.A.V. ratios and higher dividend yields when investing in riskier REITs. So the big question on my mind is, is MPACT’s risk profile closer to these smaller REITs than a blue-chip REIT?
How Cheap is Cheap?
In a previous post on MPACT about 8 months ago, I attempted to provide a sense of how cheap MPACT really is based on the Price-to-N.A.V ratio. To quickly recap in 2 minutes what I explained in one post, basically, I assigned a Price-to-N.A.V. ratio of 1.0 for its high quality Singapore properties, and a ratio of 0.78 for its other properties excluding the troubled Festival Walk. The ratio of 1.0 corresponds to that of other blue-chip REITs, while the ratio of 0.78 was the average for all REITs in Singapore. The latter is just a quick-and-easy reference, so please don’t scold this uncle for imprecision! (Feel free to revisit the previous post here.)
So after calculating as what I mentioned, I concluded that at the previous price of $1.24, investors are essentially buying MPACT’s Singapore properties at fair value and getting Festival Walk for free, totally free of charge. I believe the computations still roughly hold true based on today’s valuations and prices.
You may ask me, hey uncle, since MPACT is this cheap, isn’t this a buying opportunity? Well, true, but I think we should take a step back and look closer and deeper into its assets, to try to uncover the reasons why MPACT is trading this cheaply.
VivoCity: The Forever Jewel of MPACT
If you’ve followed my channel for a while, you’ll know that I genuinely love this mall. It’s not just a shopping center; it’s an iconic retail destination in Singapore that has consistently outperformed, quarter after quarter. And in this latest quarter, it has once again proven why it stands out.
Occupancy at VivoCity is practically full, sitting at an impressive 99.9%. In a challenging retail environment, this kind of stability speaks volumes about the mall’s desirability among tenants. Even more encouraging is the strong rental reversion of 16.9%! This means that tenants renewing their leases are paying significantly higher rents than before, a clear sign that demand for space in VivoCity remains strong. Shopper traffic and tenant sales continue to hold up well, reaffirming VivoCity’s position as one of Singapore’s most resilient malls with strong catchment of shoppers.
Beyond its current strength, MPACT is also actively enhancing VivoCity’s potential. The upcoming Asset Enhancement Initiativ for Basement 2 is expected to yield a return of over 10%, which is a solid move to boost long-term income. This involves reconfiguring the basement retail space to increase retail lettable area from carpark space, and create a more optimized layout and enhance the overall shopping experience. With better foot traffic flow and an improved tenant mix, this will not only increase rental revenue for the basement level but also enhance the appeal of the entire mall.
All terrific so far! But zooming out from this eye candy to the whole REIT, this is where reality sets in. VivoCity only contributes 26.5% of MPACT’s net property income or NPI.
Let’s take a closer look at the rest of MPACT’s portfolio and assess whether, and how much the 73.5% is struggling and relying on VivoCity to hold things together.
Weak Operational Metrics: A Sign of Deeper Issues
One of the biggest concerns I have with MPACT is its overall operational performance, which has weakened significantly despite VivoCity. The overall portfolio occupancy stands at just 90%, one of the lowest among Singapore’s blue-chip REITs. Looking through the list of S-REITs with occupancy rates lower than MPACT reflects the gloom: these REITs are CapitaLand China Trust, iREIT Global, and the US office REITs.
Equally concerning is the tenant retention rate, which is just 46%. In other words, more than half of MPACT’s tenants are not renewing their leases. Even VivoCity, one of its strongest-performing properties, only recorded a 78% tenant retention rate, which is low compared to CICT’s 96.4%. A low retention rate suggests tenants are leaving, leading to higher vacancies or weaker rental reversions.
And speaking of rental reversions, they’re not looking great either. While VivoCity remains strong at 16.9%, many of MPACT’s other properties are struggling with negative or weak reversions, ranging from -9.0% for Japan properties and -2.9% for China properties. The positive rental reversion from VivoCity is just sufficient to offset that of other countries, resulting in overall rental reversion of 4.6%.
The Festival Walk Problem And Why It’s Not Improving
Let’s now talk about the biggest concern for MPACT: Festival Walk.
Tenant sales at Festival Walk have dropped 9.3% year-on-year, while rental reversions remain deeply negative at -7.2%. This tells us that even though some tenants are staying, they are not willing to pay higher rents, which reflects weaker demand.
We have all heard about how the retail sector in Hong Kong is suffering due to leakage to Shenzhen. Recently, I watched CNA’s documentary on Hongkongers shopping in Shenzhen, and it really opened my eyes! (Link to CNA’s documentary is here.)Many residents in northern Hong Kong now find it far more convenient and cheaper to shop across the border in Shenzhen, where prices are significantly lower. I would recommend you watching the documentary if you have not. Now, if consumers are consistently choosing to spend their money elsewhere, it’s no wonder that retail in Hong Kong continues to struggle.
Festival Walk, located in Kowloon, is right in northern Hong Kong where the catchment shoppers are most likely to make the trip to Shenzhen. To make things worse, another 1.3 million square feet of new retail space is set to open soon in Kowloon East, increasing competition. So while MPACT’s Singapore properties are still strong, Festival Walk remains a major drag, with no clear signs of a turnaround any time soon.
Other Overseas Properties Are Struggling Too
Beyond Festival Walk, MPACT’s overseas properties in China, Japan, and Korea are also underperforming.
In China, occupancy has dropped to 84.3%, while rental reversions remain negative at -2.9%. Japan is even worse, with a tenant retention rate of just 20%, which is shockingly low. Over in Korea, Pinnacle Gangnam’s occupancy rate has fallen to 89.7%, below expectations.
These numbers suggest a broader issue across MPACT’s overseas portfolio. If all these properties are not performing well at the same time, even though they are located in diverse countries subject to different economic realities and cycles, it could reflect negatively on management judgment on asset acquisitions. While I think this is likely not true, this collective underperformance raises concerns about management’s ability to turn things around.
Before we move on, if you’ve enjoyed the revelations and sharing of my views so far, please give this uncle a ‘like’ and subscribe to the channel for more honest reviews.
Are the Recent Moves Really That Positive?
Some analysts have pointed to recent moves by management as signs of proactiveness and may translate into long-term improvement. While I agree to some extent, I personally don’t find them convincing enough. Let’s look at some of them.
One example is the sale of Mapletree Anson. On paper, this was a good move, as it sold the property at an NPI yield lower than the interest rate of debt the proceeds were used to repay. This lowers MPACT’s gearing and reduces borrowing costs. But selling a prime Singapore office property also comes with a big trade-off of reducing exposure to the attractive Singapore market.
In addition, it is not such an innovative strategy. I’m sure other top-tier REITs like CICT could also have sold certain assets to lower their gearing, but they haven’t. They probably didn’t find the need to exercise this option because they know how hard it is to get quality assets back once they’re gone.
Another key argument for MPACT is its strong Singapore assets. The upcoming Asset Enhancement Initiative at VivoCity, expected to generate 10% returns. But while this is great for VivoCity, it only accounts for 26.5% of MPACT’s NPI. And recently, my friend One-Eyed Investor pointed out that even Mapletree Business City or MBC is showing signs of weaker performance. The occupancy has declined from 97.0% to 92.5% over the past year, with the contribution to NPI dropping from $46.1m to $45.5m. This reminds me of the articles on The Business Times about how the performance of business parks in Singapore have been deteriorating, which sent a cold shiver down my spine.
With MBC also showing signs of weakness, that means the ‘strong Singapore assets’ argument is getting thinner. So back to the question I posed at the start of the post: If VivoCity is the only bright spot, is it really worth holding the entire REIT?
The Dividend Uncle’s Take
Here’s my honest take.
I love VivoCity, but I’m starting to think it’s not enough of a reason to hold MPACT anymore. No matter how well one mall does, it can’t make up for the struggles at Festival Walk, the other weak overseas properties, and the cracks that are starting to be revealed at Singapore’s MBC.
That’s why I’m starting to make tough decisions on MPACT. VivoCity may be fantastic, but it can’t carry the weight of the whole REIT forever. There are just too many risks and challenges floating in my mind. There are some positives such as lower interest expense, but unless we see a real turnaround in Hong Kong or its overseas properties, I’m remaining skeptical for now.
I know many avid supporters of MPACT may scold this uncle for saying this, but as always, I’m just sharing my personal views based on my own analysis and how it fits into my portfolio. I encourage you to do your own analysis and form your own views, and consult a licensed financial adviser for advice suited for your own circumstances.
Alright folks, that’s all for today. What do you think? Are you still holding onto MPACT, or are you looking at other opportunities? Let me know in the comments! And if you found this post helpful, don’t forget to like and subscribe.
Until next time, happy investing!
The Dividend Uncle 
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