Mapletree North Asia Commercial Trust - CGS-CIMB Research 2019-12-05: Drag At Festival Walk Moderated By New Acquisitions


Mapletree North Asia Commercial Trust - Drag At Festival Walk Moderated By New Acquisitions

  • Repair works at Festival Walk; plans for distribution top-up from 1 Oct 19 to 30 Jun 20.
  • Plans to acquire two Japan office properties for a total of S$482.5m.
  • Maintain ADD with a lower DDM-based Target Price of S$1.29.

Update on Festival Walk

  • MAPLETREE NORTH ASIA COMMERCIAL TRUST (SGX:RW0U) provided an update on Festival Walk since its closure on 13 Nov due to extensive damage. The mall remains closed with major recovery and repair works to be carried out within the premises, including repair/replacement to glass entrances, glass curtain walls, escalators, lifts and glass balustrades along common areas. Festival Walk is expected to re-open partially/fully only in 1QCY20. See Mapletree North Asia Commercial Trust Announcements.
  • The office component was closed between 13-25 Nov and has resumed operations, with rental collection, from 26 Nov.

Distribution top-up to moderate adverse earnings impact

  • Insurance coverage for Festival Walk includes both property damage and loss of revenue due to business interruptions. Assessment of the quantum recoverable by insurance claims is currently underway, and the timing of receipt of the claims has yet to be determined.
  • With rental contributions from Festival Walk adversely impacted for the six-month period between 1 Oct 19 to 31 Mar 20, Mapletree North Asia Commercial Trust has proposed a distribution top-up for the period from 1 Oct 19 to 30 Jun 20. The distribution top-up is based on c.40% of Festival Walk’s retail revenue and will be funded via external borrowings.
  • See Mapletree North Asia Commercial Trust Dividend History.

Proposed acquisition of two Japan office properties

  • At the same time, Mapletree North Asia Commercial Trust plans to purchase 98.47% stakes in two office properties – mBay Point Makuhari in Chiba and Omori Prime Building in Shinagawa, in the Greater Tokyo area, for a total consideration of ¥37,905.2m (S$482.5m) from Mapletree Investments. The properties are currently 84.8-100% occupied with weighted average lease expiry ranging from 1.7-3.6 years.
  • The transaction will further diversify Mapletree North Asia Commercial Trust’s income base, with Japan accounting for a higher 17% of NPI and HK exposure reducing to 58%. Furthermore, there is potential earnings upside from boosting occupancy and positive rental reversion as the assets are under-rented currently.

Purchase to be funded via equity and debt

  • The Japan acquisition is expected to be funded by equity (S$145.5m) and debt (S$337m). The new units will be issued to Mapletree Investments, at a price based on the 10-day VWAP preceding the date of the issuance of the units.
  • Mapletree North Asia Commercial Trust's gearing ratio is expected to increase to 39% post acquisition, and could trend up a little with the inclusion of the additional debt to fund the distribution top-up.

Inexpensive valuation but lacking near-term re-rating catalysts

  • We cut our FY20-22F DPU by 7.7-29% to factor in the lower performance at Festival Walk, partly offset by contributions from the new Japan properties. Accordingly, our Target Price is cut to S$1.29. See Mapletree North Asia Commercial Trust Share Price; Mapletree North Asia Commercial Trust Target Price.
  • Post-acquisition, it expects to derive more than 75% of contributions from developed markets, thus starting its journey for potential index inclusion into the EPRA NAREIT Developed Asia Index. However, we think there is little near-term catalyst for share price outperformance.
  • Downside risk include slower than expected recovery at Festival Walk.

LOCK Mun Yee CGS-CIMB Research | EING Kar Mei CFA CGS-CIMB Research | https://www.cgs-cimb.com 2019-12-05
SGX Stock Analyst Report ADD MAINTAIN ADD 1.29 DOWN 1.470