DBS Group Research and Citi Research and CGS International have maintained their “buy” call on Mapletree Pan Asia Commercial Trust N2IU (MPACT). Citi has a target price of $1.47, while DBS has upgraded target price to $1.80 from $1.75 previously. CGS International has downgraded its target price to $1.53, from $1.66 previously.
The analysts note that MPACT had mixed performance in 2QFY2025, ended Sept 30.
In its announcement dated Oct 24, MPACT announced 2QFY2025 revenue of $255.6 million and net property income (NPI) of $167.7 million, representing a 6.1% y-o-y and 8.5% decline, respectively. MPACT’s 2QFY2025 DPU fell 12% y-o-y to 1.98 cents.
DBS analysts Geraldine Wong and Derek Tan attribute this to the divestment of Mapletree Anson in July, the absence of refund of property tax from a year ago and foreign exchange (forex) impact. Furthermore, there was lower NPI contribution from overseas property, with a 11% decline y-o-y led by Japan, South Korea, China and Hong Kong.
However, DBS’s Wong and Tan note that this was “offset by stronger performance at Vivocity, supported by lower utility expenses and 2.6% lower net financing costs through debt reduction post divestment”.
Citi analyst Brandon Lee notes that MPACT continues to benefit from positive Singapore rent reversions in 1HFY2025, driven by Vivocity with a positive rental reversion of 17.3%. This is supported by mTower/Bank of America HabourFront and Mapletree Business City, with a positive rental reversion of 8.8% and 2.5%, respectively.
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Furthermore, he notes that “VivoCity’s tenant sales grew 2% y-o-y in 2QFY2025 following a relatively soft 1QFY2025 from higher outbound travel, though it fell 5% y-o-y due to downtime from ongoing asset enhancement initiatives (AEI) and a higher number of non-trading days due to tenant changeovers or rejuvenation efforts.”
Despite this, DBS’s Wong and Tan have remained positive on MPACT, noting that MPACT’s growth trajectory has yet to be priced in.
Wong and Tan believe that MPACT remains a prime beneficiary of an interest rate cut, with a 100 basis points (bps) cut equating to a potential 2.4% boost to FY2025 distribution per unit (DPU), particularly when benchmark rates in Hong Kong and Singapore are on a declining trend.
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MPACT’s portfolio occupancy
Overall, portfolio occupancy stood at 90.3% this quarter, representing a 3.7 percentage points (ppt) q-o-q decline. The analysts note that the weaker occupancy can be attributed to its overseas markets.
Citi’s Lee notes that portfolio occupancy in Japan fell 11.9 ppts due to while The Pinnacle Gangnam in South Korea’s portfolio occupancy fell by 4.1ppts due to non-renewal of an office tenant and retail softness.
CGS International analysts Natalie Ong and Lock Mun Yee are of the opinion that MPACT’s China assets will continue to post negative reversions due to the oversupply in Shanghai and Beijing.
Furthermore, they note that management had commented that rents in the Korea office market may be close to the peak, resulting in more modest reversion in their view.
Additionally, portfolio occupancy of Festival Walk in Hong Kong declined by 3.2ppts due to its office component, although, MPACT is in progress of signing up a few leases and Lee expects it to improve in the next 2 quarters.
Festival Walk’s negative rent reversion widened q-o-q in 1HFY2025, with 2QFY2025 tenant sales down by 12.5% y-o-y, while traffic was up 6% y-o-y and 7% q-o-q.
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However, Wong and Tan remain positive on MPACT, noting that MPACT’s growth trajectory has yet to be priced in and that investors are overly concerned about the Festival Walk weakness.
Wong and Tan believe that MPACT remains a prime beneficiary of an interest rate cut, with a 100 basis points (bps) cut equating to a potential 2.4% boost to FY2025 distribution per unit (DPU), particularly when benchmark rates in Hong Kong and Singapore are on a declining trend.
They are of the opinion that concerns of a further write-off on Festival Walk are “over-stated” based on comparable market transactions, which imply that book values are achievable in the current market.
“The sequential improvement in cash flows in 1Q25 from Festival Walk signals better times ahead, and with the interest rate overhang tapering off, higher operating cash flows are likely to flow down to the bottom line,” Wong and Tan add.
MPACT’s gearing
MPACT’s gearing fell 2.1 ppts q-o-q to 38.4%, with debt cost flat at 3.56% and fixed/hedged debt proportion up 4.7ppts q-o-q to 83.6%.
DBS’s Wong and Tan state that MPACT’s recent divestment of Mapletree Anson solidifies its balance sheet position, pro-forma gearing of around 38% and interest coverage ratio improves to more than 3 times.
“We believe further asset divestments could be in the offing to further streamline the portfolio, thus repositioning the REIT to capture growth opportunities from its sponsor or third parties,” Wong and Tan note.
Looking ahead, DBS’s Wong and Tan note that MPACT has completed a mid-year revaluation to reflect the impact on net asset value (NAV), however, they anticipate a year end valuation uplift in Singapore assets that could neutralise the Japan repricing.
CGS International’s Ong and Lock note that barring any portfolio reconstitution, they are of the opinion that gearing should remain below 40% as management has noted that it will not consider drawing down debt to top up distributions and has no plans for share buybacks.
Removed from dividend pick
In a separate note, DBS says it has removed MPACT from its dividend pick, given its “weaker-than-expected” 2QFY2024 results. DBS sees a tactical negative reaction of MPACT’s unit price to $1.34 at least, with the share price staying muted heading into the next quarterly update.
DBS has lowered its exposure to MPACT by a total of 11,000 shares at $1.48 and $1.51 earlier this month, and will remove the remaining 12,000 shares on Oct 25, returned at an amalgamated 14.4%, including dividends paid.
