CGS-CIMB has upgraded its call on Mapletree Pan Asia Commercial Trust : N2IU 0% (MPACT) to “buy” from “hold”, as it said the real estate investment trust’s (Reit) valuations are turning attractive. 

The research house values MPACT at a price-to-book ratio about 2.7 standard deviation points below its five-year historical average.

But it lowered its target price to S$1.54 from S$1.76, upon accounting for vacancy risks for three of the Reit’s assets and higher costs of equity assumptions.

This also resulted in a 0.4 per cent to 4.7 per cent cut to the research house’s FY2024 to FY2026 distribution per unit (DPU) estimates for the Reit.

While MPACT’s negative reversions are anticipated to continue in China and Japan due to softer markets, CGS-CIMB analysts said they were “comforted” by the portfolio assets’ high occupancy and five- to seven-month runway to backfill known non-renewals.

Based on the Reit’s latest set of second-quarter financials, they noted a “slight improvement” in the Reit’s capital position, but think its gearing is likely to remain elevated in the near term.

GET BT IN YOUR INBOX DAILY

Start and end each day with the latest news stories and analyses delivered straight to your inbox.

Sign UpVIEW ALL

“We think MPACT is at an inflection point, and we expect a resumption of positive DPU growth from FY2025,” said the analysts in a report on Friday (Oct 27).

“Meanwhile, we believe capital management efforts, such as the recent swapping of Hong Kong dollar debt into Chinese yuan, should deliver cost savings, while MPACT awaits divestment opportunities to de-lever its portfolio.”

DBS Group Research, on the other hand, maintained its “buy” call on the Reit with an unchanged target price of S$2.

Like CGS-CIMB, DBS also noted that office markets in China and Chiba, Japan, remained challenging.

It nonetheless highlighted MPACT’s Festival Walk retail mall in Hong Kong as a beneficiary of further recovery in local and tourist spending, noting that the asset continued to improve, albeit at a “moderate” pace.

“We believe there is still upside in Festival Walk to its full potential once again,” said DBS analysts. 

“While there are some occupancy risks in the near term and some macro risks, we believe a strong performance of its Singapore assets will support MPACT’s portfolio as we await a stronger recovery from its overseas assets.”

Units of MPACT were unchanged at S$1.30 as at 2.50 pm on Friday.