Mapletree North Asia Commercial Trust - CGS-CIMB Research 2019-07-30: Increased Headwinds


Mapletree North Asia Commercial Trust - Increased Headwinds

  • Mapletree North Asia Commercial Trust's 1QFY3/20 DPU of 1.95 Scts was in line at 24.5% of our FY20 forecast.
  • Festival Walk continue to enjoy positive reversions, Gateway Plaza dragged by negative renewals.
  • We maintain our ADD call with a DDM-based Target Price of S$1.50.

1QFY3/20 results highlights

  • MAPLETREE NORTH ASIA COMMERCIAL TRUST (SGX:RW0U) reported a 11.1% y-o-y rise in 1QFY3/20 revenue to S$104.9m thanks to better performances at Festival Walk (FW), Gateway Plaza (GW) and Sandhill Plaza (SP), as well as a full quarter’s contribution from Japan properties, and higher HK$ exchange rate, partly offset by the weaker Rmb.
  • Distribution income grew 9.3% to S$62m while DPU rose 3.7% y-o-y to 1.95 Scts due to a larger units base.
  • 1Q portfolio occupancy remained high at 99.1%, although slightly lower q-o-q, due to a dip in Gateway Plaza occupancy.

FW continued to enjoy positive reversions

  • In tandem with the softer HK retail market due to subdued domestic demand from ongoing trade tensions, Festival Walk saw a 3.2% and 1.8% y-o-y decline in tenant sales and shopper traffic respectively. Nonetheless, it continued to enjoy positive rental reversion of 12% for its retail renewals and 5% for its office renewals.
  • Looking ahead, Mapletree North Asia Commercial Trust has 14.2% of portfolio income left to be renewed at Festival Walk for the rest of FY20F and 14.9% in FY21F. We anticipate Festival Walk’s performance to remain resilient given its strategic location above the Kowloon Tong MTR station.

Macro uncertainties and increased supply drag on GW performance

  • Gateway Plaza saw negative reversion of 5% for leases renewed in 1Q due to a more cautious environment from macro uncertainties and increased new office supply. The outlook remains challenging. However, with a moderate 3% of portfolio gross rental income to be re-contracted at this property for the remainder of FY20F and 2.7% in FY21F, we anticipate the impact of slower contributions to be muted.
  • Sandhill Plaza enjoyed a positive uplift of 33% for two leases renewed in 1Q and is expected to benefit from continued demand for more affordable business park space.

Healthy gearing

  • Gearing stood at 36.9% at end-1QFY20, well within the ceiling of 45%, with robust interest cover ratio of 4.4x. An estimated 87% of its debt is on fixed rates and only 14% of its total debt is due to be refinanced in FY20-21F. Assuming an optimal gearing level of 42%, Mapletree North Asia Commercial Trust has additional debt headroom of S$680m for inorganic growth purposes.

Maintain ADD

  • Our FY20-22F DPU estimates are intact. Our DDM-based Target Price remains at S$1.50.
  • While the softer retail HK market and macro uncertainties such as global slowdown and domestic protests may cause some near term headwinds, we believe Festival Walk’s performance track record should provide a stable base for the trust.
  • Share price catalysts include a recovery in HK retail sales while downside risks include protracted slowdown.

LOCK Mun Yee CGS-CIMB Research | EING Kar Mei CFA CGS-CIMB Research | https://research.itradecimb.com/ 2019-07-30
SGX Stock Analyst Report ADD MAINTAIN ADD 1.500 SAME 1.500