Mapletree North Asia Commercial Trust - OCBC Investment 2018-08-01: There’s Something Magical About MAGIC

MAPLETREE NORTH ASIA COMM TR SGX:RW0U

Mapletree North Asia Commercial Trust - There’s Something Magical About MAGIC

Mapletree North Asia Commercial Trust (MNACT; Ticker: MAGIC SP) reported its 1QFY19 results which came in within our expectations. Gross revenue and NPI jumped 6.2% and 6.7% y-o-y to S$94.4m and S$76.8m, respectively, with the latter forming 23.6% of our FY19 forecast. A full quarter of contribution will come from the acquisition of its Japan portfolio from 2QFY19, as completion of the deal took place on 25 May 2018.
DPU grew at a smaller magnitude of 1.6% y-o-y to 1.881 S cents due to a larger unit base from a private placement exercise to fund the Japan acquisition.

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Operationally, overall portfolio occupancy moved up 1.1 ppt q-o-q to 99.6% due to robust improvement at Gateway Plaza (+3.1 ppt to 99.6%) and addition of the Japan portfolio which is 100% occupied.
For Gateway Plaza, occupancy was exceptionally high, and this was underpinned by expansion of space from existing tenants and tight supply. Most of its tenant base is made up of local companies which largely serve the domestic market. As such, MNACT has not seen material impact from the ongoing trade friction between China and US.
Rental reversions also gathered momentum, coming in at 14% for Festival Walk (retail component), 11% for Gateway Plaza, 18% for Sandhill Plaza and 6% for Japan. Management sounded upbeat on its prospects during the analyst conference call, barring any unforeseen circumstances. Rental reversions at Festival Walk are expected to remain robust, with 1-2 leases which may deliver better than expected rental uplifts upon renewal. One of the leases entails a relatively large space at the mall.
Another positive came from solid growth in Festival Walk’s retail sales and footfall at 10.9% and 7.2% y-o-y to HK$1.29b and 9.7m, respectively.

With the addition of the Japan portfolio to its portfolio in 1QFY19, we believe MNACT has found a better balance, as the Japan properties complement its other assets, given its longer WALE and lower borrowing costs in Japan, although growth would be more moderate. This provides increased stability to MNACT’s unitholders.
Looking ahead, management remains on the lookout for further inorganic growth opportunities in China, Hong Kong and Japan. We retain our fair value estimate of S$1.42 on MNACT.

Wong Teck Ching Andy CFA OCBC Investment Research | https://www.iocbc.com/ 2018-08-01

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