Mapletree North Asia Commercial Trust - DBS Research 2019-07-30: The Magical Ride Continues As Key Assets Anchor Another Strong Quarter


Mapletree North Asia Commercial Trust - The Magical Ride Continues As Key Assets Anchor Another Strong Quarter

  • Mapletree North Asia Commercial Trust's consistent DPU growth is a valued trait.
  • Positive rental reversions for Festival Walk and Japan,more than compensates for slight dip at Gateway Plaza.
  • Ample gearing headroom to acquire accretively.
  • Maintain Buy and S$1.65 Target Price.

What’s New

Maintains consistent quarterly DPU growth

  • Mapletree North Asia Commercial Trust (SGX:RW0U) reported 1QFY20 DPU of 1.95 Scts, up 3.7% y-o-y, and forming c. 25% of our full year estimates - in line.
  • The rise in this quarter’s DPU came mainly from the steady uplift in in revenues which continues to be underpinned by the resilient performance of Mapletree North Asia Commercial Trust’s largest asset, Festival Walk in HK, and a full quarter contribution from the Japan office portfolio acquired in 1QFY19. This more than offset the slight weakness in revenues at Gateway Plaza and Sandway Plaza, brought about by a slight weakness in the CNY.
  • As a result, 1QFY20 revenue and NPI jumped c.11.1% and 10.7% y-o-y to S$105m andS$85.0m respectively. Stripping out the boost from the Japan acquisition, both revenue and NPI of Mapletree North Asia Commercial Trust’s original portfolio would have risen byc.3.3% y-o-y.

Festival Walk achieves another milestone.

  • Festival Walk had a good start to the year with 1QFY20 revenue and NPI increasing by 6.5% and 6.7% y-o-y to S$64.8m and S$52.7m respectively.
  • Stripping out the impact of a 2% stronger HKD versus SGD, 1QFY20 revenue and NPI would still have risen 4.2% and 4.3% y-o-y in HKD terms respectively.
  • The better results in HKD terms was largely led by the impact from positive rental reversions (+12% in 1QFY20) in the past year while the property remain fully occupied.
  • In the quarter, tenants’ sales and footfall fell 3.2% and 1.8% y-o-y respectively on the back of a softening retail sector in HK, which saw Hong Kong SAR retail sales declining by 1.8% over Jan- May’19 due to subdued domestic demand from the trade tensions.

Maturing Gateway Plaza

  • After the stellar growth from Gateway Plaza in Beijing since Mapletree North Asia Commercial Trust’s listing, as expected, earnings contribution from the property moderated with a further drag from a weaker CNY.
  • 1QFY20 revenue and NPI for Gateway Plaza fell c.4.0% y-o-y to S$21.3m and S$16.9m respectively.
  • On a constant currency basis, 1QFY20 revenue was flattish on a y-o-y basis. We saw a slight dip in occupancies coupled with 5.0% negative rental reversions, which may continue to be a drag in terms of performance in the subsequent quarter.

Forex impact on Sandhill Plaza; strong uplift in rents in 1QFY20

  • Earnings from Sandhill Plaza was also impacted by a weaker CNY, with 1QFY20 revenue and NPI for the property falling 1.6% and 3.4% y-o-y to S$6.1m and S$5.6m respectively.
  • Excluding the impact of the depreciation of the CNY, 1QFY20 revenue and NPI were c.1.4% and 2.8% higher respectively on a y-o-y basis.
  • Overall, Sandhill Plaza’s occupancy remains high at 99.3%. The property achieved a 33% rise in rental reversions in 1QFY20 on the back of a renewal of 2 leases, and this should set the tone for an improved performance from 2QFY20 onwards.

Japan – stable rental reversions in the quarter.

  • The Japan properties remained stable – with 100% occupancy rates and c.6% positive rental reversions on renewal of 3 leases that expired in 1QFY20.
  • Contributing a sizeable 14% to topline, the positive rental reversions also points to a stronger 2QFY20 performance.

Fall in gearing to c.37% post revaluation gains

  • Balance sheet remains strong with gearing stable at c.36.9%, in line with management’s comfortable range. Overall interest cost was also stable at 2.43% with average term to maturity for debt at 3.46 years.
  • An estimated c.87% of borrowings are fixed rate borrowings which minimises the impact of interest rate volatility on their distributions.

Maintain BUY, Target Price of S$1.65

  • With a strong start to the new financial year, we expect investors to continue remain vested in the stock at 1.0x P/NAV (S-REIT average of 1.15x) and an attractive yield of c.5.5%
  • We continue to like Mapletree North Asia Commercial Trust for its resilient and steady DPU profile combined with quality Grade A assets in Hongkong, China, and Japan.
  • Furthermore, we see opportunities for Mapletree North Asia Commercial Trust’s yield to compress closer to its HK-listed peers given consistent delivery track record.

Derek TAN DBS Group Research | Carmen TAY DBS Research | Rachel TAN DBS Research | https://www.dbsvickers.com/ 2019-07-30
SGX Stock Analyst Report BUY MAINTAIN BUY 1.650 SAME 1.650