MAPLETREE NORTH ASIA COMM TR (SGX:RW0U)
Mapletree North Asia Commercial Trust - A Better Tomorrow
- Earnings diversity to limit impact of potential operational headwinds for Festival Walk.
- Expect more tenant assistance at Festival Walk in coming quarters, but impact already priced into estimates.
- Office properties (c.54% of NPI) to remain resilient.
- Manager continued to look for opportunities to grow inorganically in China and Japan.
Mapletree North Asia Commercial Trust's 1QFY20 operating update.
- Gross revenue of Mapletree North Asia Commercial Trust (SGX:RW0U) declined by 10.7% and 19.5% to S$93.6m and S$68.5m respectively. This was mainly driven by rental reliefs granted to tenants and a lower retail rental rate achieved at Festival Walk as a result of the COVID-19 outbreak and lower occupancy rate at Gateway Plaza. This was mitigated by a strong HKD, RMB and JPY vs. the SGD and full-quarter contribution from the acquisition of MBP and Omori from Japan.
- Portfolio level performance. Occupancy level remained stable at 96.4% with negative rental reversions for Festival Walk (-10% in 1Q20), Gateway Plaza (-5%) while Sandhill Plaza (+7%) and Japan properties (+8%) remained positive.
Festival Walk – near-term headwinds as COVID risks re-emerge.
- Gross revenue and NPI declined by 33% and 39.9%, respectively, due to the rental reliefs granted and a lower average rental rate. In the quarter, the manager extended S$18.1m in rental reliefs (retail tenants) for the quarter, which we estimate to be c.27% of one quarter’s normalised revenues.
- The manager has continued to offer rental reliefs going into 2QFY21 given the uncertain operating climate; depending on the severity of the potential 2nd wave of infections in Hong Kong, we may see similar levels of next quarter vs. 1QFY21.
- Retail sales plunged by 38.6% while footfall stood at 44.9% in the quarter. We understand that among the diverse trades in the mall, the F&B trades did well, the fashion trades, however, remained under pressure given the lower footfalls.
- Given the rise in adoption of online shopping including food delivery, the manager looks to work with delivery platforms (i.e. Food Panda) and will be introducing a mobile app (with loyalty programme) which we believe over time will lift retailers overall revenues and keep Festival Walk relevant in the Hong Kong retail ecosystem.
Office properties
Gateway Plaza – Adjusting leasing strategies in response to weak market.
- Gross revenues and NPI declined by 9.8% and 9.7%, respectively, on the back of lower achieved rents and lower average occupancy rate that were mitigated by a stronger RMB vs. SGD.
Sandhill Plaza – stable metrics.
- Gross revenues and NPI increased by 1.0% and 1.2% y-o-y, respectively, given the steady demand arising from its positioning as an affordable business space alternative to CBD.
- The property achieved a higher average rent despite a dip in occupancy rate.
Japan – acquisitions driven
- The acquisitions of Omori and MBP drove the 96.9% and 61.8% increase in gross revenues and NPI for Japan in the quarter respectively.
Our thoughts & Recommendation:
- While it is easy to pinpoint the negatives for the stock, we believe it has been overly penalised despite its earnings diversity.
- Mapletree North Asia Commercial Trust's share price has fallen close to 11% (month-to-date) while the FSTREI is up c.4% over the same period, given the operational uncertainties arising from Festival Walk (estimated to contribute c.46% of NPI in 1QFY21) on back of the emergence of COVID-19 in Hong Kong.
- We believe that the stock is reflecting investors’ concerns over further rental reliefs which may erode rental income and distributions. That said, we believe this has largely been priced in, as the mall’s operating performance is tracking our estimates (1QFY21 NPI formed 21% of our full-year estimate). We keep our estimates for now, pending the outcomes of relief programmes come 2QFY21.
- While we anticipate that we may have to trim our estimates if the situation persists, we believe that at a P/NAV of 0.7x and a forward prospective yield of > 7%, most of these negatives are priced in.
- 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.
- Given that Mapletree North Asia Commercial Trust derives c.54% of its NPI from its commercial (office) properties in China and Japan whose performance is expected to be more stable, we believe that investors have overly punished Mapletree North Asia Commercial Trust.
- Maintain our BUY call and Target Price of S$1.05.
Derek TAN
DBS Group Research
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Singapore Research Team
DBS Research
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https://www.dbsvickers.com/
2020-07-28
SGX Stock
Analyst Report
1.050
SAME
1.050
