Mapletree North Asia Commercial Trust - CGS-CIMB Research 2018-07-31: A Good Quarter

MAPLETREE NORTH ASIA COMM TR SGX:RW0U

Mapletree North Asia Commercial Trust - A Good Quarter

1QFY19 DPU 1.881 Scts was in line, accounting for 24.6% of our FY3/19 forecast.
There were positive rental reversions across all properties in the portfolio.
Interest rate exposure is 90% hedged.
In our view, there is more debt headroom for new acquisitions, with a gearing of 38.8%.
We maintain our ADD call with an unchanged target price of S$1.30.

Mapletree North Asia Commercial Trust reported 1QFY3/19 DPU of 1.88 Scts (advanced distribution of 0.764 Scts paid on 25 May 18), +1.6% y-o-y, supported by a 6.2%/6.7% rise in revenue and NPI.
There was higher income from Festival Walk (FW), Gateway Plaza (GW) and Sandhill Plaza (SP) and maiden contribution from the Japan properties, partly offset by a lower average HK$ rate.
Portfolio occupancy remained high at 99.6%. 72% of FY3/19 portfolio expiries have been renewed/re-let. 1Q DPU is in line at 24.6% of our FY19 forecast.

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In tandem with the improved HK retail sector, Festival Walk (FW) performed well, with tenant sales and shopper traffic up 10.9%/7.2% y-o-y. All tenant trade sectors saw better y-o-y sales performance. Four new F&B outlets and two apparel concepts opened during the quarter including Fila Kids and Rosamund Moiselle. As a result, retail reversions for 1Q averaged a healthy 14% over preceeding levels.
But gross rental revenue for FW, in S$ terms, slipped 1.5% y-o-y, impacted by a weaker HK$. With a remaining 23% of expiries to be renewed at FW for FY3/19, we anticipate continued improvement in rental renewals.

The China properties also performed well in 1Q on positive rental reversions and stronger Rmb. Gateway Plaza (GW) enjoyed 11% uplift in rentals over previous levels while occupancy improved to 99.6%. Demand continues to come from local companies.
Meanwhile, Sandhill Plaza (SP) also saw an 18% increase in rentals for its expiring leases despite a slight slip in occupancy to 98.1%.

The newly acquired Japan properties contributed a maiden c.5 weeks of revenue of S$5.1m. During the period, it enjoyed 6% rental uplift over preceding levels for two lease renewals.
The Japan portfolio remains fully occupied.

Gearing rose to 38.8% due to additional debt funding for the Japan assets. Average debt maturity is 3.93 years and blended cost of funds declined to 2.44%. 90% of its debt is at fixed rates and 69% of its FY19 distributable income has been hedged.
The trust continue to be well placed for acquisition growth with a potential debt headroom of c.S$400m, based on a target gearing of 42%.

Our FY19-21 DPU estimates are intact. Our DDM-based target price of S$1.30 is maintained.
We like Mapletree North Asia Commercial Trust for its largely resilient portfolio with growth, underpinned by FW.
Downside risks include a weaker than expected Beijing office leasing market.

LOKE Mun Yee CGS-CIMB Research | EING Kar Mei CFA CGS-CIMB Research | https://research.itradecimb.com/ 2018-07-31

SGX Stock Analyst Report ADD Maintain ADD 1.30 Same 1.30