Mapletree North Asia Commercial Trust - OCBC Investment 2019-12-06: Distribution Top-Up & Growing Its Japan Presence

MAPLETREE NORTH ASIA COMM TR (SGX:RW0U) | SGinvestors.io MAPLETREE NORTH ASIA COMM TR (SGX:RW0U)

Mapletree North Asia Commercial Trust - Distribution Top-Up & Growing Its Japan Presence

  • Distribution top-up to mitigate income void.
  • No visibility on timing of insurance claims.
  • Diversifying income stream with proposed Japan acquisitions.



Aiming to reopen Festival Walk in 1QCY20

  • MAPLETREE NORTH ASIA COMMERCIAL TRUST (SGX:RW0U)’s Festival Walk mall has been closed since 13 Nov, and there are major recovery and repair works to be carried out. Management is working towards having the mall reopen (partially or fully) in 1QCY20 (subject to approvals from the relevant authorities). See Mapletree North Asia Commercial Trust Announcements; Mapletree North Asia Commercial Trust Latest News.
  • For the office tower, it was also closed on 13 Nov but reopened on 26 Nov.
  • Rental from Festival Walk’s retail tenants will not be collected over the duration when the mall is closed. However, as highlighted previously, Festival Walk has insurance coverage which includes property damage and loss of revenue due to business interruptions.


Rental income void to be partially covered by distribution top-up in 2HFY20 and 1QFY21

  • While assessment of the revenue loss amount and property damage is currently underway, there is no visibility yet on when Mapletree North Asia Commercial Trust will receive the insurance claims reimbursement. Given this income void, Mapletree North Asia Commercial Trust will be implementing a top-up to the distributable income for 2HFY20 and 1QFY21. This distribution top-up amounts to ~40% of Festival Walk’s retail revenue.
  • Once the insurance claims proceeds are received, it will be used to repay the borrowings undertaken to fund the top-up.


Proposed acquisitions of two properties in Greater Tokyo from sponsor

  • Separately, Mapletree North Asia Commercial Trust also announced the proposed acquisition of a 98.47% stake in two freehold, multi-tenanted office properties (mBay Point Makuhari Building (MBP) in Chiba and Omori Prime Building (OPB) in Shinagawa) in Greater Tokyo, Japan, from its sponsor.
  • The combined agreed property value is JPY38.1b (~S$485.1m), and translates into an NPI yield of 4.5%. Occupancy rate is 85.9% (84.8% for MBP and 100% for OPB) and hence we see potential upside to the income yield if Mapletree North Asia Commercial Trust manages to ramp up MBP’s occupancy to 90-95%, which is the average occupancy for surrounding buildings.
  • Given Japan’s negative 10-year government bond yield, this acquisition represents a healthy yield spread of 470 bps as compared to Mapletree North Asia Commercial Trust’s existing portfolio outside of Japan (~270 bps for Festival Walk and ~160 bps for its China properties), although this is lower than its existing Japan portfolio (~510 bps).
  • Funding would come in the form of
    1. issuance of transaction units to its sponsor (subject to whitewash waiver) and
    2. debt financing.
    The funding mix is likely to be ~30/70% equity/debt.
  • Pro forma aggregate leverage is expected to increase from 37.1% to 39.0% post completion, while pro forma FY19 DPU is expected to increase by 1.8% (assuming transaction units are issued at S$1.15 per unit). Festival Walk’s contribution is expected to decline from 62% to 58% of overall portfolio NPI post completion of the acquisitions.
  • Taking these developments into account and also lowering our rental assumptions for Festival Walk, we pare our FY20F and FY21F DPU forecasts by 4.8% and 2.4%, respectively. Correspondingly our fair value is reduced to S$1.36 from S$1.41. See Mapletree North Asia Commercial Trust Dividend History; Mapletree North Asia Commercial Trust Share Price; Mapletree North Asia Commercial Trust Target Price.





OCBC Research Team OCBC Investment Research | https://www.iocbc.com/ 2019-12-06
SGX Stock Analyst Report BUY MAINTAIN BUY 1.36 DOWN 1.410



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