UOB Kay Hian analyst Jonathan Koh has maintained his “buy” call on Mapletree Pan Asia Commercial Trust N2IU (MPACT) although he sees a mixed outlook for the REIT’s core retail assets, VivoCity and Festival Walk in Hong Kong.
“While VivoCity has benefitted from the return of tourists, Festival Walk has not,” Koh writes. The former has been going from strength to strength with continual enhancements; VivoCity saw q-o-q growth in its rental reversion of 14.2% for the 2QFY2024. Its occupancy also improved q-o-q to 100% during the same period. In comparison, Festival Walk has seen a relatively muted recovery. The mall has continued to see negative rental reversion at -9.5% as at the 1HFY2024 while its tenant retention is “sub-optimal” at 57.5% during the same period. That said, Festival Walk was able to attract new tenants to maintain its 100% occupancy.
MPACT, which also owns office and business park properties in Singapore such as Mapletree Business City (MBC), mTower and Mapletree Anson were “resilient” although the REIT’s management cautioned weaknesses overseas in Shanghai, China, and Chiba, Japan.
While Koh sees that MPACT provides stability from diversification in its geographical presence on the whole, the analyst has cut his FY2025 distribution per unit (DPU) estimates by 6.6%. This is due to lower contributions from China and further depreciation of the Chinese yuan (CNY) and Japanese yen (JPY) of 4% and 10% y-o-y respectively against the Singapore dollar (SGD).
“We estimate revaluation losses of $204 million from MPACT’s China properties at end-FY2024, assuming: cap rate expansion of 25 basis points (bps), occupancy further declining to 85% (2QFY2024: 88.9%), and CNY depreciating 4% against SGD. We expect the lower portfolio valuation to cause aggregate leverage to increase by 1.0 percentage points to 41.7%,” he writes.
Based on his estimates, MPACT is trading at a FY2025 distribution yield of 6.3% and P/NAV of 0.79x.
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His target price has been lowered to $1.68 from $1.80 previously, based on a cost of equity (COE) of 7.25% and terminal growth of 2.2%.
Units in MPACT closed 1 cent higher or 0.73% up at $1.38 on Dec 1.
