MPACT Earnings: Revaluation Loss on Makuhari Assets; Overseas Portfolio Continues to Face Challenges

We reduce our fair value estimate for Mapletree Pan Asia Commercial Trust to SGD 1.60 per unit from SGD 1.68 after another challenging quarter that saw the trust miss our earnings expectations. Fiscal 2025 (ending March) second-quarter distribution per unit fell 11.9% year over year to SGD 0.0198 due to the absence of a one-off property tax refund, currency headwinds, and a lower contribution from overseas assets. The trust did an off-cycle valuation exercise on three Japan office assets in Makuhari, which resulted in an 18.6% revaluation loss in local currency terms. The Fujitsu Makuhari Building took the biggest hit, declining 40.9% mainly due to the nonrenewal of the lease by master tenant Fujitsu. Furthermore, weaker leasing assumptions were applied by the valuers due to current market softness. Besides trying to find replacement tenants, management is currently exploring various options such as changing the use of the buildings or divesting the properties. After updating our foreign-exchange assumptions and lowering our leasing assumptions for MPACT’s Japanese assets, we cut fiscal our 2025-27 DPU estimates by 7.3%-7.4%. While the trust continues to screen as undervalued, we expect its China, Japan, and Hong Kong portfolio to be affected by weak demand in the near term.