Mapletree North Asia Commercial Trust - CGS-CIMB Research 2020-01-21: Earlier-than-expected Recovery

MAPLETREE NORTH ASIA COMM TR (SGX:RW0U)

Mapletree North Asia Commercial Trust - Earlier-than-expected Recovery

We update MAPLETREE NORTH ASIA COMMERCIAL TRUST (SGX:RW0U)’s DPU and DDM-based Target Price following recent 3QFY3/20 results and revised management guidance on portfolio performance and Festival Walk (FW) Top-up. Accordingly, our FY20F/21F DPU estimates are raised by 26.8%/9.1% to 7.16/6.98 Scts and DDM-based Target Price is lifted. See Mapletree North Asia Commercial Trust Target Price.
At the current price, Mapletree North Asia Commercial Trust offers investors an FY21F dividend yield of 5.7%. See Mapletree North Asia Commercial Trust Share Price; Mapletree North Asia Commercial Trust Dividend History.
We maintain ADD rating on our expectations of potential catalyst from faster than expected recovery of Festival Walk’s operations.
Downside risks include slower-than-expected recovery at Festival Walk and Gateway Plaza (GW).

Mapletree North Asia Commercial Trust reported a 36.3%/12.5% y-o-y drop in 3QFY3/20 revenue/distributable income to S$67.3m/S$53.4m. The poorer results were due to weaker performance at Festival Walk, lower occupancy and rents at Gateway Plaza (GW) and a dip in Japan occupancies, partly offset by Festival Walk Top-up of S$25.8m. See Mapletree North Asia Commercial Trust Announcements.
3Q/9MFY3/20 DPU of 1.671/5.558 Scts fell 13.3%/3.1% y-o-y, making up 29.6%/98.4% of our FY20F forecast.

Festival Walk retail mall re-opened on 16 Jan 2020 following a 64-day closure, and rental collection has resumed. The re-opening period was much earlier than previous guidance of 1QCY20. Management had indicated that with the re-opening of Festival Walk, there will be no further distribution top-up for Festival Walk. It also indicated that when the insurance claims’ proceeds are received, any amount exceeding the distribution top-up will be paid to unitholders as distributable income from operations.
Festival Walk accounted for 43%/38% of Mapletree North Asia Commercial Trust’s 3QFY3/20 revenue/net property income. Accordingly, we raise our FY20-21F distributable income forecasts to reflect the shorter closure period at Festival Walk.

In China, operating conditions remain challenging amid heightened supply which dragged Gateway Plaza’s 3Q occupancy to 91.6% (vs 96.5% as at 2Q) with slight negative rental reversion.
In Japan, lease expiry at a single tenanted building and conversion to multi-tenancies resulted in lower rental income as at 3Q. We anticipate Japan performance to improve post conversion.

In addition, we expect Mapletree North Asia Commercial Trust’s FY21F DPU to be boosted by new contributions from the acquisitions of 98.47% stakes in mBay Point Makuhari and Omori Prime Building in the Greater Tokyo area, announced in Dec 2019, for a total consideration of ¥37,905.2m (S$482.5m). The properties are currently 84.8-100% occupied with potential earnings upside from higher occupancy and positive rental reversion as the assets are under-rented currently.
Mapletree North Asia Commercial Trust’s gearing ratio could rise from 37.1% at end-3QFY20 to c.39% post acquisition.

LOCK Mun Yee CGS-CIMB Research | EING Kar Mei CFA CGS-CIMB Research | https://www.cgs-cimb.com 2020-01-21

SGX Stock Analyst Report ADD MAINTAIN ADD 1.31 UP 1.290