CGS-CIMB downgraded its call on Mapletree North Asia Commercial Trust (MNACT) to “hold” from “add”, as the near-term upside for its unit price is likely capped by the consideration price of its proposed merger with Mapletree Commercial Trust (MCT).

The managers of MCT and MNACT had in December proposed a merger of both real estate investment trusts (Reits), with MNACT unitholders having the option, among others, to receive a scheme consideration of S$1.1949 for each MNACT unit held wholly in cash.

The research team maintained its target price of S$1.13 on the counter, noting that MNACT’s current unit price is already trading above the all-cash consideration price of S$1.949 per MNACT unit.

Units of MNACT were trading at S$1.22 as at the midday break on Thursday (Apr 21), down S$0.01 or 0.8 per cent.

The research team, however, noted that there may be upside potential if there is a faster-than-expected recovery in the performance of Festival Walk, MNACT’s shopping mall in Hong Kong.

MNACT on Tuesday posted a 2.8 per cent rise in distribution per unit (DPU) to S$0.03393 for the second half-year ended Mar 31, from S$0.03299 a year earlier, with gross revenue up 4.9 per cent on year to S$211.2 million. Net property income (NPI) also grew 5.1 per cent on year to S$160.1 million.

MNACT’s manager attributed the increase in gross revenue and NPI to lower rental reliefs granted to retail tenants at Festival Walk, as well as contributions from the Hewlett-Packard Japan Headquarters Building, which was acquired in June 2021.

The research team said the Reit’s results were largely in line with its forecasts, but still slightly lowered its DPU estimates by around 1.5 per cent for FY2023 to FY2024.

It expects weak outlook at its Beijing mall, Gateway Plaza, will continue to drag on upcoming lease renewals, but noted that the management remains cautiously optimistic as the impact of Covid-19 recedes.