Mapletree North Asia Commercial Trust - CGS-CIMB Research 2020-07-28: Near-term Headwinds Persist

MAPLETREE NORTH ASIA COMM TR (SGX:RW0U)

Mapletree North Asia Commercial Trust - Near-term Headwinds Persist

Mapletree North Asia Commercial Trust's 1QFY21 revenue/NPI slightly below expectations at 23.5%/22.8% of our FY21F projections.
Challenging outlook for Festival Walk and Gateway Plaza, stable Japan and Sandhill Plaza.
Reiterate ADD, with a lower DDM-based Target Price of S$1.12.

In its 1QFY21 (April 2020 to June 2020) business update, Mapletree North Asia Commercial Trust (SGX:RW0U) indicated that its revenue and net property income (NPI) declined 10.7% and 19.5% y-o-y respectively to S$93.7m S$68.5m, dragged down by rent reliefs granted to tenants and lower average rental rate at Festival Walk (FW) and lower occupancy at Gateway Plaza (GW), albeit partly offset by a full-quarter’s contributions from two Japan properties acquired in Feb 2020 and higher HK$, Rmb and ¥ against the S$.
Gross revenue/NPI were slightly below expectations at 23.5%/22.8% of our FY21F projections. Portfolio occupancy stood at 96.4% as at end-1QFY20.

Festival Walk saw its 1QFY21 tenant sales and shopper footfall declining 38.6% and 44.9% y-o-y, respectively, impacted by the Covid-19 outbreak. Mapletree North Asia Commercial Trust extended S$17.9m in rent reliefs to retail tenants at Festival Walk in 1Q.
Occupancy dipped marginally to 99.3% at end-1Q while retail rental reversion averaged -10%. To support its tenants, Mapletree North Asia Commercial Trust launched marketing and promotional activities to drive more sales and shopper traffic.
Going forward, the retail environment in HK SAR remains challenging and would likely continue to put pressure on reversions and occupancy, in our view. Mapletree North Asia Commercial Trust has an estimated 12.6% of FY21F lease expiries at Festival Walk for the rest of FY3/21F.

In China, operating conditions remain challenging amid heightened supply which dragged down Gateway Plaza’s 1Q occupancy to 91.4%, with -5% rental reversion. Sandhill Plaza (SP) continued to achieve higher average rents due to robust demand for more affordable decentralised office space.
Japan portfolio occupancy improved to 97.7% in 1Q on higher take-up at its newly-acquired mBay Point Makuhari Building (MBP) and Monzen-nakacho Building (MON) assets while rental reversion uplift averaged 8%. Mapletree North Asia Commercial Trust said it would continue to focus on tenant retention for a stable office income base.

Mapletree North Asia Commercial Trust’s gearing ticked up marginally to 39.6% as at end-1Q, with average debt maturity of 3.05 years. Effective interest cost declined to 2.17%. Mapletree North Asia Commercial Trust enjoys a strong liquidity position, with S$674.1m of committed and uncommitted undrawn credit facilities.

We cut our Mapletree North Asia Commercial Trust's FY21-22F DPU by 1.1-9.6% to factor in more tenant rental reliefs at Festival Walk as well as our expectation of lower occupancy on the back of slower leasing activities. Consequently, our DDM-based Target Price dips to S$1.12.
Maintain ADD with potential dividend yield of 6.8% for FY3/21F.
See Mapletree North Asia Commercial Trust Share Price; Mapletree North Asia Commercial Trust Target Price; Mapletree North Asia Commercial Trust Analyst Reports; Mapletree North Asia Commercial Trust Dividend History; Mapletree North Asia Commercial Trust Announcements; Mapletree North Asia Commercial Trust Latest News.
Potential re-rating catalyst: faster-than-expected recovery of Festival Walk's operation.
Downside risks: slower-than-expected recovery at Festival Walk and Gateway Plaza.

LOCK Mun Yee CGS-CIMB Research | EING Kar Mei CFA CGS-CIMB Research | https://www.cgs-cimb.com 2020-07-28

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