Mapletree Pan Asia Commercial Trust reported lower distribution for its 3QFY2024 over the year-earlier period but analysts are cheered by its ongoing operational improvement and therefore recommending investors to “buy”.
For its three months ended Dec 2023, MPACT grew its revenue by 0.8% y-o-y and net property income by 1.7% y-o-y. However, distribution was weighed down by higher debt cost and unfavourable forex.
Distribution per unit for the quarter was down 9.1% y-o-y to 2.2 cent although that was in line with what the analysts were expecting.
Portfolio occupancy was slightly higher by 0.4%pts q-o-q to 96.7%. All properties saw improvements except VivoCity, which was down 0.3% percentage points to 99.7%. Portfolio rent reversion improved by 4.1% in 9MFY2024, with the more significant gains generated by VivoCity and Mapletree Business City here in Singapore, versus a similar gain of 3.2% in 1HFY2024.
On the other hand, rental reversions dropped for its properties in Hong Kong, China and Japan.
Brandon Lee of Citi Research, who has a “buy” call and $1.72 target price on this counter, expects FY2024 valuation to remain flat with no major changes in cap rates or discount rates for its properties, subject to forex changes.
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However, a couple of other sore points remain. Traffic at Festival Walk, MPACT’s key retail asset in Hong Kong, improved by 5% y-o-y in 3QFY2024 but tenant sales were still down 3% y-o-y, which puts it at just 71% of pre-pandemic levels.
For now, Festival Walk had to make do with a negative 8.1% rental reversion for 9MFY2024, although that was a lower drop versus -9.5% suffered in 1HFY2024. According to Lee, the negative trend will only be “flushed out” in the coming FY2025.
Meanwhile, MPACT is also trying to win tenants to take up vacant space at Mapletree Business City given up by major tenants Google and Unilever.
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The REIT, according to Citi’s Lee, will seek a share buyback mandate from its unitholders at its coming AGM but the way he sees it, buybacks is to be weighed against high gearing and alternative uses of funds.
Lee commends MPACT’s move to lower its debt costs by reducing the proportion of pricier HKD debt but he believes that investors prefer lower gearing instead, most likely via the divestment of one of its major assets. “However, it seems to us near-term likelihood is not high, given divestment window in China is still closed,” says Lee.
Nonetheless, Lee notes that MPACT has underperformed S-REITs as a whole, and as such, keeping his “buy” call on valuations.
DBS Group Research, which alludes to MPACT’s yield of 6.4% for FY2025, is more bullish. In a Jan 30 note, DBS sees some “glimmer of hope” for Festival Walk.
That aside, the strong presence of Singapore assets within MPACT’s portfolio will help anchor the REIT as investors await clearer recovery from the overseas assets. VivoCity, for one, will continue to be a “strong anchor” and “on track to chart new highs”, says DBS, which has a “buy” call and target price of $2.
Krishna Guha of Maybank Securities has also turned slightly more positive on MPACT. In his Jan 30 note, he raised his FY2024 and FY2025 DPU estimates by 3% after factoring in lower borrowing costs. Coupled with a lower discount rate, his target price has been lifted from $1.25 to $1.40.
Nonetheless, “with headwinds persisting for refinancing and performance of overseas assets and the recent rally closing the valuation gap with peers, we maintain our 'hold' rating,” says Guha.
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OCBC Investment Research, after inputting a bigger ESG valuation discount, has increased its fair value estimate from $1.58 to $1.59. MPACT remains a “buy” for its “steady improvement in recovery efforts”.
