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.
See also: SAC Capital initiates ‘buy’ on Sanli Environmental after $105.3 mil contract win from PUB
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: CGSI downgrades Grab to ‘hold’ ahead of 2QFY2025 results, expects consumer spend to slow in 2H2025
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.
