Mapletree Pan Asia Commercial Trust

CGS-CIMB Research “hold” $1.90 Maybank Securities “buy” $1.90 Citi Research “buy” $1.90 DBS Group Research “buy” $2

Analysts mixed on MPACT’s 4QFY2023 results

Analysts are mixed on their outlook for Mapletree Pan Asia Commercial Trust (MPACT) after the trust announced its results for the 4QFY2023 ended March on April 27.

Excluding the one-off release of retained cash in 4QFY2022 of 0.47 cents, MPACT’s 4QFY2023 DPU was flat y-o-y at 2.25 cents.

CGS-CIMB Research analysts Natalie Ong and Lock Mun Yee have downgraded MPACT to “hold” with a lower target price of $1.90 from $2.08 previously.

In their May 1 report, the CGS-CIMB analysts say that they have lowered their estimates for MPACT’s FY2024 and FY2025 DPU by 8.9% and 6.2% respectively on higher interest costs and unfavourable foreign exchange assumptions.

While the trust’s capitalisation rates were unchanged in FY2023, portfolio valuation dipped 2.3% y-o-y. This is because valuation gains in its Singapore portfolio were offset by lower valuation of its overseas portfolio and further exacerbated by unfavourable foreign exchange movement.

As at March, MPACT’s gearing inched up q-o-q to 40.9% from 40.1% previously due to lower asset value post-revaluation exercise. Its average all-in cost of debt increased 11 basis points q-o-q to 2.68% while adjusted interest coverage ratio slipped slightly from 3.8x to 3.5x.

Although 75.5% of MPACTs borrowings are on fixed rates, 11% of its borrowings are up for refinancing in FY2024, the CGS-CIMB analysts point out. The trust’s management has guided that based on current interest rates, cost of debt for FY2024 could land at 3.5%. While it considers divestment as a possible option to lower its gearing, valuation weakness — particularly in the North Asia markets — is a deterrent to the strategy, Ong and Lock say.

On the other hand, Krishna Guha of Maybank

Securities has upgraded the stock from “hold” to “buy” as he believes that the known negative news on MPACT had already been taken into account by the market. These include Google renewing its lease at Mapletree Business City in phases and the multi-year woes suffered by the Festival Walk mall in Hong Kong.

While he has lowered his DPU estimates for the current FY2024 and coming FY2025 by 3.4% and 1.2% respectively, he has upgraded the stock to “buy”, given his previous target price of $1.65, versus the current estimate of $1.90.

“Catalysts may emerge from the stabilisation of rates and asset recycling. MPACT trades at book and yields 5.5%, which we believe compensates for some of the risks,” he adds.

Meanwhile, Citi Research’s Brandon Lee says MPACT’s 4QFY2023 results had again shown the strength and relative outperformance of its core assets in terms of reversion and occupancy, especially VivoCity which saw record-high tenant sales of over $1 billion in FY2023.

Lee highlights that MPACT’s portfolio occupancy remained stable at 95.4%, with improvement in Singapore mitigated by declines in China, Festival Walk in Hong Kong and Japan. Its portfolio rent reversion in FY2023 turned positive at 0.7% after being in the red over 9MFY2023, largely helped by its Singapore portfolio.

VivoCity’s tenant sales notched a fifth straight quarter of above pre-Covid-19 level in 4QFY2023 of $247.3 million, while its ongoing asset enhancement initiatives involving about 80,000 sq ft of space reconfiguration appears to have achieved a higher return of investment of over 20% versus the initial guidance of 10%.

Lee also notes that Festival Walk continued to witness negative reversion of –12.7% in FY2023 amid improving sales and traffic as a result of the border reopening with China, aside from the lifting of all remaining measures.

DBS Group Research analysts Rachel Tan and Derek Tan concurs. Although Hong Kong and China properties’ recovery from Covid-19 may seem a little slow, the analysts believe that it is just a matter of time before it recovers, likely picking up its pace from 2H2023.

“Festival Walk tenant sales continue to be impacted by the Covid-19 policy but saw a slight uptick this quarter to 77% of the pre-Covid-19 and pre-social incident levels, versus 74% in 3QFY2022/2023. We remain hopeful that this is a positive start to the long-awaited reopening of China,” the DBS analysts add.

Citi’s Lee is maintaining his “buy” on MPACT with a target price of $1.90. This comes on the back of the ongoing reopening theme in Singapore and Hong Kong’s retail sector, aside from the divestment of Japan and China assets which is the next major share price catalyst in Citi’s view.

The DBS analysts have also maintained “buy” with a target price of $2. However, the analysts have trimmed their FY2023/FY2024– FY2024/2025 estimates by 2% to 3% to factor in higher interest rates of 3.5% and 3.8%, versus 3% and 3.2% respectively. —