Mapletree North Asia Commercial Trust - CGS-CIMB Research 2020-09-28: Maiden Entry Into Seoul


Mapletree North Asia Commercial Trust - Maiden Entry Into Seoul

  • Maiden South Korea office purchase with a 50% stake in Pinnacle Gangnam.
  • DPU-accretive deal; diversification strategy to boost resilience.
  • Reiterate ADD rating with a higher DDM-based Target Price of S$1.15.

Diversifying into the South Korean office market

  • Mapletree North Asia Commercial Trust (SGX:RW0U) announced that it has entered into a sale and purchase agreement to co-invest in The Pinnacle Gangnam, a Grade A office building in Seoul, South Korea. Under the agreement, Mapletree North Asia Commercial Trust will hold a 50% stake in the property while Mapletree Investments Pte Ltd and an independent third party investor will own the remaining 50%.
  • The Pinnacle Gangnam is located in Seoul’s Gangnam Business District (GBD) and has direct access to an underground subway station, providing excellent connectivity across the Seoul metropolitan area. The 44,444 sq m GFA building was 89.6% occupied as at July 2020. The property is leased to tenants from the IT, manufacturing, apparel and services sectors, including notable names such as Qualcomm, Huvis, JustCo, Ralph Lauren and Echo Marketing. About 97% of the leases have fixed annual rental escalations of 2-3%.

DPU-accretive deal; enhancing resilience through diversification

  • Based on an agreed property value of W458.8bn (S$536.4m), the property offers an initial net yield of 3.2% with potential upside from improving occupancy as well as yield, thanks to positive South Korea office market fundamentals, such as resilient office rents, underpinned by robust leasing demand and limited new supply, particularly in the GDB area.
  • Mapletree North Asia Commercial Trust’s share of the total acquisition cost works out to S$267.6m and will be fully funded by debt. The acquisition is expected to be completed in 3QFY21. According to management, post-acquisition gearing is expected to be 41.4% vs. 39.6% as at Jun 2020.
  • Not only is the purchase expected to be accretive, lifting our FY21-23F DPUs by 0.45-1.23%, the transaction will further diversify Mapletree North Asia Commercial Trust’s geographic footprint, with HK SAR exposure reducing to 45% of NPI, as well as enhance the resilience of the REIT with an expanded tenant trade sector exposure, in our view.

Waiving performance fee until DPU reaches FY20 level

  • Separately, in consideration of the impact of COVID-19 on Mapletree North Asia Commercial Trust’s distributions to unitholders and to demonstrate its alignment of interest, the REIT Manager will waive its entitlement to any performance fee until such time that Mapletree North Asia Commercial Trust’s DPU exceeds its pre-COVID-19 FY20 DPU of 7.124 Scts.
  • Based on our FY21-23F DPU estimates, we believe that performance fees will likely resume only from FY22F onwards.

Reiterate ADD rating on Mapletree North Asia Commercial Trust

LOCK Mun Yee CGS-CIMB Research | EING Kar Mei CFA CGS-CIMB Research | https://www.cgs-cimb.com 2020-09-28
SGX Stock Analyst Report ADD MAINTAIN ADD 1.15 UP 1.120