Mapletree North Asia Commercial Trust - OCBC Investment 2020-07-28: Soft Operating Environment As Expected

MAPLETREE NORTH ASIA COMM TR (SGX:RW0U)

Mapletree North Asia Commercial Trust - Soft Operating Environment As Expected

Mapletree North Asia Commercial Trust (SGX:RW0U) provided a business update for 1QFY21 (Apr 2020 to June 2020). Gross revenue and NPI fell 10.7% and 19.5% y-o-y to S$93.7m and S$68.5m, respectively. The decline was attributed to rental reliefs to tenants amounting to S$18.1m and a lower average retail rental rate at Festival Walk (FW) amid the Covid-19 pandemic, coupled with lower average occupancy at Gateway Plaza (GP) but partially offset by contribution from acquisitions. There was also a high base effect as 1QFY20 had not seen the impact of the social unrests in Hong Kong.
Mapletree North Asia Commercial Trust's NPI in 1QFY21 formed 21.3% of our FY21F forecast.
We expect a better performance in 2HFY21 but the recent increase in local Covid-19 transmission cases in Hong Kong does place downward pressure on the retail sector, with the possibility of more rental support to be provided by landlords to tenants.

Operationally, Mapletree North Asia Commercial Trust’s overall portfolio occupancy remained firm, increasing 1.2 ppt q-o-q to 96.4%. The slight declines at Festival Walk (-0.5 ppt to 99.3%), Gateway Plaza (-0.1 ppt to 91.4%) and Sandhill Plaza (-1.7 ppt to 96.3%) were offset by a 3.0 ppt increase in Japan to 97.7%.
Rental reversions were mixed, coming in at -10% for Festival Walk (retail) and -5% for Gateway Plaza, but +7% at Sandhill Plaza and +8% for its Japan properties. Given the Covid-19 situation, there has been a slight increase in the number of short-term renewals with rental rates that trend lower. If we take these leases into account, the average rental reversion for Festival Walk would have been lower at -15%. Passing rents at Festival Walk (retail) stood at HK$157.50 psf/month, versus HK$158.7 psf/month as at end-4QFY20 and HK$160.5 psf/month as at end-1QFY20.
Shopper traffic and tenants’ sales at Festival Walk fell 44.9% and 38.6% y-o-y in 1QFY21, respectively, although there was some improvement seen in footfall when some of the social distancing measures were eased in May 2020. That said, the recent resurgence in infections in Hong Kong has resulted in the authorities imposing new restrictions. This includes a ban on dining in restaurants and gatherings of more than two people for seven days starting from 29 Jul.

Taking these recent developments into account, we lower our Mapletree North Asia Commercial Trust's FY21F and FY22F DPU forecasts by 4.4% and 3.0%, respectively. We also ease our terminal growth rate assumption by 25 bps to 1.25%. Consequently, our fair value estimate declines from S$1.13 to S$1.09.
In terms of financial position, Mapletree North Asia Commercial Trust’s gearing ratio was 39.6% (+0.3 ppt q-o-q), while it has S$674.1m of committed and uncommitted undrawn credit facilities and cash balances on hand, versus S$301m of debt which is maturing for the remainder of FY21.
Based on Mapletree North Asia Commercial Trust’s closing price of S$0.88 on 27 Jul 2020, it is trading at FY21F distribution yield of 7.4% and P/B of 0.63x.
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.

OCBC Research Team OCBC Investment Research | https://www.iocbc.com/ 2020-07-28

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