Mapletree North Asia Commercial Trust - DBS Research 2020-07-28: A Better Tomorrow


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:

Derek TAN DBS Group Research | Singapore Research Team DBS Research | https://www.dbsvickers.com/ 2020-07-28
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