Mapletree North Asia Commercial Trust - DBS Research 2019-11-11: When The Going Gets Tough, The Tough Gets Going


Mapletree North Asia Commercial Trust - When The Going Gets Tough, The Tough Gets Going

  • Festival Walk closed early on Sunday for safety reasons after altercations broke out from a peaceful gathering.
  • According to news reports, there was minimal damage to the property and the mall will resume operations today.
  • While Festival Walk has stayed very resilient with no major disruptions thus far, this ‘event’ may lead to some near-term weakness given the highly volatile situation in HK.
  • Nevertheless, management has handled the delicate situation well and promptly; however, we believe it may be an opportune time for Mapletree North Asia Commercial Trust to diversify and reduce its concentration risk.

What’s New

  • We noted on Festival Walk’s facebook page that the mall had closed early on Sunday evening at 7pm for the safety of tenants, shoppers and employees. This was amid another round of skirmishes across selected locations across Hong Kong between the protesters and the Hong Kong police. In the evening, we noted that various media sources had reported that one of the incidents occurred at Festival Walk and several shops were damaged and vandalised.
  • According to an update released by MAPLETREE NORTH ASIA COMMERCIAL TRUST (SGX:RW0U), there was a peaceful gathering of protesters which started in the afternoon of 10 Nov 19 but altercations broke out which resulted in some injuries and the decision was made to close Festival Walk at 6.45pm.
  • The Manager’s team was on site to manage the situation.
  • According to the announcement, there was minimal damage to the property and the mall will resume operations today i.e.11 Nov 19.
  • See Mapletree North Asia Commercial Trust Announcements.

Our views:

Festival Walk: A “kink” in its armour

  • Since listing, the mall has been a fortress for Mapletree North Asia Commercial Trust over the years given management’s attention and having a core property management & operations team has kept the mall churning out strong growth in cashflows. We note that when the HK protests began in June-19, Festival Walk had been relatively unscathed from the various skirmishes across the city which were largely confined to the streets.
  • In 2QFY20, Festival Walk reported resilient occupancy rates of 100% despite footfall falling by 3.6% and tenant sales declining by 6.6% in 1HFY20. We estimate that 2QFY20 metrics were slightly weaker (-4.9% for footfall; -10% for tenant sales) due to more subdued consumer sentiment and disruption brought about by the protests in Hong Kong.
  • We however pointed out that Festival Walk’s operational metrics have been more resilient compared to the overall Hong Kong retail sales statistics which, on a comparable year basis, contracted by 9.3% (Apr19-Aug19) and fell by 11.5% and 23% y-o-y respectively in July’19 and Aug’19.
  • With protesters now heading to the malls (especially Festival Walk), this may lead to regular shoppers staying away in the near term given the highly volatile situation. With the peak shopping season (Christmas and Chinese New Year) coming up, the chance of further near-term weakness is likely.

Strong management team

  • We maintain our view that with CEO Cindy Chow of Mapletree North Asia Commercial Trust at the helm, supported by a core operations & property management team led by a dedicated Ms. Sandra Cheng, they will be crucial in navigating Festival Walk’s operations past this volatile and emotionally sensitive period.

More urgency to diversify, in our view

BUY call maintained.

Derek TAN DBS Group Research | Rachel TAN DBS Research | https://www.dbsvickers.com/ 2019-11-11
SGX Stock Analyst Report BUY MAINTAIN BUY 1.600 SAME 1.600