Mapletree Pan Asia Commercial Trust (MPACT) plans to divest Mapletree Anson for $775 million and channel the proceeds to pare down debt, joining a growing list of REITs and trusts divesting assets in a bid to ease balance sheet strain.

The sale to an unnamed third party is at a gain of $10 million over the property's valuation as at March 31. It will also be a premium of $95.0 million above the original purchase price of $680 million paid back in 2012.

MPACT is expecting net proceeds of $762 million and can help reduce its aggregate leverage from 40.5% as at March 31 to 37.6% on a pro forma basis. 

It can also help improve MPACT's adjusted interest coverage ratio from 2.9 times to 3.3 times on a pro forma basis. 

With a lower gearing level, MPACT's debt headroom can increase to $3.9 billion from $3.2 billion as at March 31.

MPACT says the divestment can help generate around 1.5% accretion to FY2023 - FY2024 DPU on a pro forma basis.

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"MPACT will be favourably positioned to safeguard and potentially enhance unitholder value in the future," says MPACT.

Sharon Lim, CEO of the manager, says the divestment is a proactive step to enhance MPACT's financial resilience and agility to respond to the market.

She adds that with the divestment, MPACT's proportion of Singapore assets will be reduced but with more than half of the portfolio value, assets here remain the "cornerstone" of its investment strategy.

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MPACT's crown jewels are the VivoCity mall and the Mapletree Business City. These two assets contribute 58% and 53% to its net property income and AUM respectively.

Its other assets are in Hong Kong, China and other parts of Asia, which tend to underperform relative to the Singapore assets.

Upon completion of the deal, MPACT will own 17 properties with a total AUM of $15.7 billion.

"As we move forward, our portfolio management approach will continue to be agile and adaptive," says Lim.

The transaction is scheduled for completion in July 2024. 

As promised, MPACT has not only successfully executed the divestment to further strengthen its capital structure, it has delivered better than market expectations by divesting above its book value and resulting in a DPU accretion of 1.5%. 

"We believe this will address investors’ concern on MPACT’s gearing at 40% by bringing down the gearing to a more comfortable level of 37.6% post the transaction," says DBS Group Research in a research note on May 31.

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"In addition, the divestment does not change MPACT’s asset composition, which is another investors’ concern," adds DBS.

DBS further describes the timing of the announcement as "timely", given how May 31 is the date MPACT is to be among the counters removed from the MSCI SG Index, which presumably would have led to further selling.

"As such, we believe this could mark the start of re-rating for MPACT," says DBS, which has kept its "buy" call and target price of $1.75.

MPACT units closed at $1.22 on May 30, unchanged for the day but down 20.78% year to date.


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