MAPLETREE NORTH ASIA COMM TR (SGX:RW0U)
Mapletree North Asia Commercial Trust - Insurance Coverage To Mitigate Impact
- Festival Walk closed since 12 Nov, 2pm.
- Damage can be covered by insurance.
- Time to diversify income streams.
Extensive damage to Festival Walk, but insurance coverage to mitigate impact
- The sudden escalation in violence in Hong Kong has resulted in Mapletree North Asia Commercial Trust (SGX:RW0U)’s Festival Walk (又一城) mall being affected more severely this time round. Mapletree North Asia Commercial Trust announced on the morning of 13 Nov that there was extensive damage to Festival Walk due to various incidents on 12 Nov which resulted in glass panels being smashed and damage to the balustrades on various levels of the mall. Festival Walk has been closed since 2pm on 12 Nov. See Mapletree North Asia Commercial Trust Announcements; Mapletree North Asia Commercial Trust Latest News.
- From our understanding, Mapletree North Asia Commercial Trust has two types of insurance coverage. Firstly, a policy on physical damage with an adequate sum covered. Secondly, Mapletree North Asia Commercial Trust also has business interruption insurance which covers for the loss of rental income. Mapletree North Asia Commercial Trust has initiated the process for claims and a site inspection has already been carried out by the insurers. However, given that there would likely be a backlog of claims from other affected parties amid city-wide disruptions, we believe it would take time before any reimbursement is done.
Likely limited financial drag in near-term
- In terms of financial impact, Mapletree North Asia Commercial Trust appeared confident that there will be limited impact on its FY20 financials. Management also highlighted that there are typically no pre-termination clauses for its tenancy agreements, but it will continue to support its tenants on a case-by-case basis.
- There is currently no visibility on how long the mall will remain closed. Notwithstanding this, Mapletree North Asia Commercial Trust believes that it will not breach any loan covenants related to its FY20 P&L.
Will continue to seek acquisition opportunities to diversify income streams
- Given this ongoing situation, we believe Mapletree North Asia Commercial Trust will step up its efforts to source for inorganic growth opportunities to diversify its income streams. With a gearing ratio of 37.1% (as at 30 Sep 2019), we estimate that Mapletree North Asia Commercial Trust has a debt headroom of ~S$662m before reaching its comfortable gearing ratio of 42%.
- We trim our FY20F and FY21F DPU forecasts slightly by 0.5% and 0.8%, respectively. This is premised on lower tenant sales assumption and a higher unit base given that more units would need to be issued for management fees paid in units with the decline in share price. See Correspondingly, our fair value eases from S$1.43 to S$1.41. See Mapletree North Asia Commercial Trust Share Price; Mapletree North Asia Commercial Trust Target Price; Mapletree North Asia Commercial Trust Dividend History.
- Valuations look attractive at current levels (6.7% distribution yield for both FY20F and FY21F based on 13 Nov closing price), but we do acknowledge that sentiment on the stock would likely remain weak and volatility in share price may persist in the near-term.
- Hence, for investors who are open to taking a longer-term view and willing to accept potential near-term volatility, gradual accumulation would be the prudent approach, in our view.
OCBC Research Team
OCBC Investment Research
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https://www.iocbc.com/
2019-11-14
SGX Stock
Analyst Report
1.41
DOWN
1.430
