Mapletree North Asia Commercial Trust - CGS-CIMB Research 2020-10-30: Not Entirely Out Of The Woods Yet

MAPLETREE NORTH ASIA COMM TR (SGX:RW0U)

Mapletree North Asia Commercial Trust - Not Entirely Out Of The Woods Yet

Mapletree North Asia Commercial Trust's 1HFY21 DPU of 2.876 Scts was slightly below, at 47.7% of our FY21F.
We expect gradual improvement at Festival Walk, and new contributions from Seoul acquisition in 2HFY21F.
Reiterate ADD on Mapletree North Asia Commercial Trust with an unchanged DDM-based Target Price.

Mapletree North Asia Commercial Trust (SGX:RW0U) reported 1HFY21 (Apr 2020 to Sep 2020) gross revenue/net property income (NPI) of S$190.1m/S$139.7m, -9.6%/-17.7% y-o-y, due to rental reliefs granted to retail tenants at Festival Walk and lower average rents, partly offset by contributions from Japan assets acquired in Feb 2020 and stronger HK$/¥/Rmb vs. the S$. Distributable income of S$96.8m translates into DPU of 2.876 Scts.
That said, management indicated that 2Q NPI improved q-o-q with higher turnover rental revenue from Festival Walk, lower rental relief as well as higher occupancy at Festival Walk and Gateway Plaza. Portfolio occupancy stood at 96.6% as at end-1HFY21.
Mapletree North Asia Commercial Trust revalued its portfolio value down by 4.8% translating to a BV/unit of S$1.337 and lifted gearing to 40.1%.

Festival Walk saw its 1HFY21 tenant sales and shopper traffic decline 36.2% and 45.5% y-o-y, respectively, impacted by the COVID-19 outbreak. However, taking a closer look, Festival Walk’s tenant sales and foot traffic gradually improved m-o-m in Aug and Sep 2020 with the easing of restrictive measures, to show a smaller 25.9% and 46.8% decline respectively, in Sep 2020.
Mapletree North Asia Commercial Trust extended S$34.9m in rent reliefs to retail tenants at Festival Walk in 1H. Occupancy was relatively stable at 99% at end-1H while retail rental reversion averaged -12% as management adopted a tenant retention strategy.
Mapletree North Asia Commercial Trust deployed an active tenant remixing strategy, introducing more new F&B concepts and launching marketing and promotional events to drive more sales and footfall.
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 10%/18.6% of leases to be renewed in 2HFY21F and FY3/22F respectively.

In China, while operating conditions remain challenging amid heightened supply, Gateway Plaza managed to increase its take-up to 92.2%, with -9% rental reversion in 1H. Sandhill Plaza continued to achieve higher average rents due to robust demand for more affordable decentralised office space.
Japan portfolio occupancy improved to 97.8% in 1H on 5% positive rental reversion.
Mapletree North Asia Commercial Trust completed the purchase of a 50% stake in The Pinnacle Gangnam at end-Oct 20 and the new contributions will likely be felt in 2HFY21F.

We tweak down our Mapletree North Asia Commercial Trust's FY21-23F DPU by 0.04-1.09% to factor in a slightly more negative rental reversion assumption. Our DDM-based Target Price remains unchanged. Maintain ADD with potential FY21F dividend yield of 6.9%.
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 in Festival Walk’s operations.
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 2020-10-30

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