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Analysts keep estimates after MPACT announces plans to divest Mapletree Anson

Felicia Tan
Felicia Tan • 4 min read
Analysts keep estimates after MPACT announces plans to divest Mapletree Anson
Mapletree Anson is a 19-storey office located in Tanjong Pagar with a remaining land lease of 82 years. Photo: The Edge Singapore
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Analysts from DBS Group Research and Citi Research are keeping their “buy” calls on Mapletree Pan Asia Commercial Trust (MPACT) after the REIT announced that it plans to divest Mapletree Anson for $775 million. Mapletree Anson is a 19-storey office located in Tanjong Pagar with a remaining land lease of 82 years. 

The divestment price, which is 1.3% above its latest book value and 14% above its original purchase price, is higher than the market expected, although Citi’s Brandon Lee notes that the premium is a “benign” one.

That said, both Lee and the DBS team view the latest update positively as the divestment is expected to lower MPACT’s leverage from 40.5% as at March 31 to 37.6% on a pro forma basis.

“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 distribution per unit (DPU) accretion of 1.5%,” says the DBS team.

“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,” it adds.

Citi’s Lee also likes the “long-awaited” maiden divestment as MPACT’s relatively higher gearing of 40.5% was one of the top few concerns that investors had.

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While the divestment will lower MPACT’s exposure to the Singapore property market, it will not change the REIT’s asset composition as it remains to be anchored by Singapore. Following the divestment, MPACT’s Singapore portfolio will contribute 58% of its net property income (NPI) and make up 53% of its assets under management (AUM), down from 60% and 55% before the divestment, notes the DBS team.

“We believe the divestment is timely, announced on the day of MSCI SG Index rebalancing which we had previously expected some further selling to take place with the removal of MPACT from the index. As such, we believe this could mark the start of re-rating for MPACT,” it writes.

Citi’s Lee also sees that the slightly lower exposure will not be a concern. Rather, the divestment is expected to lead to a positive knee-jerk share price impact with operational improvements in Festival Walk, lower China exposure and potential share buybacks.

See also: Analysts weigh in on Singtel after restructuring of Intouch Holdings

Lee adds that MPACT’s manager mentioned that it is likely to include a mandate for buybacks at its annual general meeting (AGM) for the FY2024.

Units in MPACT, which has dropped by 22% year-to-date (ytd), has underperformed the Singapore REITs (S-REITs) sector, which fell by 12% in the same period. That said, Lee continues to like MPACT for its valuations.

“We also see any potential strong share price reaction of MPACT as an incentive for other highly-geared S-REITs to be more constructive/flexible in their asking prices for potential non-core asset divestments,” he says.

Both DBS and Citi have kept their target prices unchanged at $1.75 and $1.72 respectively.

Maybank Securities analyst Krishna Guha also welcomes the divestment news, although he has kept his “hold” call with an unchanged target price of $1.30.

“While there are no divestment gains to be distributed, the sale will strengthen MPACT’s capital structure and is DPU-accretive on a pro-forma basis,” he writes. “Notwithstanding the redevelopment potential of the asset, we like the transaction given the negative carry in a potentially high-for-longer interest rate outlook. Further recycling of non-core assets should boost the investment case.”

“As a sector read-through, the 19% lower mark-to-market implied by the asset sale, needs to be monitored for 2024 revaluations, net asset value (NAV) and gearing of the peers,” he adds.

As at 1.05pm, units in MPACT are trading 5 cents higher or 4.10% up at $1.27.

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