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


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

  • Earlier-than-expected recovery.
  • Weaker portfolio performance dragged 3QFY3/20 bottomline.
  • Lesser than our earlier projected drag from Festival Walk as at 3QFY3/20.
  • Maintain ADD rating with a higher DDM-based Target Price.

Updating FY20-21F earnings estimates and target price

Weaker portfolio performance drags 3QFY3/20 earnings

  • 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.

Re-opening of Festival Walk from 16 Jan 2020

  • 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.

China operations remain challenging

  • 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.

New Japan acquisitions to boost FY21F bottomline

  • 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
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