CGS-CIMB Research analysts Lock Mun Yee and Natalie Ong have kept their “add” rating on Mapletree Pan Asia Commercial Trust (MPACT) as they see the REIT’s growing pains as being alleviated by the merger between Mapletree Commercial Trust (MCT) and Mapletree North Asia Commercial Trust (MNACT).
The analysts have, however, lowered their target price to $2.11 from $2.18 previously.
See: MCT and MNACT to merge to form flagship commercial REIT, Mapletree Pan Asia Commercial Trust
Following the completion of the merger, the analysts observe that the merger improves inorganic growth prospects through mandate expansion and enhanced financial flexibility.
With the merger, MPACT’s enlarged portfolio of retail and office assets is currently valued at $16.7 billion, as compared to a previous $8.4 billion as at 1QFY2023 ending March 2023, making it the seventh-largest REIT in Asia by market capitalisation.
See also: Analysts see strategic positives from MCT and MNACT merger
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MPACT’s key assets include Festival Walk, VivoCity and Mapletree Business City (MBC) which account for 66% of combined assets under management (AUM) as at 1QFY2023.
VivoCity’s 1QFY2023 tenant sales reached 119% of 1QFY2019 levels, driven by space optimisation and tenant mix rejuvenation initiatives, observe the analysts.
Lock and Ong project FY2023 net property income (NPI) to reach pre-Covid-19 levels. “Replication of this strategy at Festival Walk could result in higher revenue productivity, catalysing a recovery ahead of our current forecast of FY2025,” say Ong and Lock.
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In addition, the analysts note that FY2023 and FY2024 topline growth drivers for the REIT include retail recovery, positive reversions at MPACT’s Singapore office and business parks, Sandhill Plaza in Shanghai, and below-market lease expiries in its Japan portfolio.
Though there were previous concerns over limited growth opportunities for Singapore-focused MCT, these have since been allayed by the merger and expanded Pan-Asia mandate, with MPACT gaining assets in four new markets through the merger – Hong Kong, China, Japan and South Korea, the analysts observe. “This allows it to leverage ancillary local expertise to source for acquisitions,” write Ong and Lock.
The analysts estimate gearing will increase from 33.4% to 39.8% pre-merger and post-merger respectively.
“Assuming [a] gearing limit of 50%, debt headroom increases from $3 billion to $3.5 billion due to MPACT’s now larger asset base, giving it greater financial flexibility when competing with other investors for assets,” they add.
Based on their estimates, Lock and Ong’s post-merger FY2023 and FY2024 distribution per unit (DPU) of 9.98 and 10.09 cents implies 1.8% and 0.9% accretion respectively to their pre-merger numbers, even after adjusting for higher electricity costs and interest rates.
“We raise our FY2023-FY2025 estimates to factor in contribution from MNACT and better performance of the portfolio, partially offset by higher utilities expenses and interest expenses,” write the analysts.
Lock and Ong’s dividend discount model (DDM)-based target price implies a 5.8% FY2023 and FY2024 DPU yield, on par with the 5.8% yield of MPACT’s closest peer, Capitaland Integrated Commercial Trust (CICT).
Based on the analysts’ estimated interest rate hedge of 79%, a 50 basis point (bps) increase in interest rates will reduce FY2023 DPU by 1.6% as well.
As at 1.15pm, units in MPACT are trading 2 cents down or 1.16% lower at $1.70 at an FY2023 P/B ratio of 0.94x and dividend yield of 5.80%.
