Mapletree North Asia Commercial Trust - DBS Research 2020-11-05: A Glimmer Of Hope Emerges

MAPLETREE NORTH ASIA COMM TR (SGX:RW0U)

Mapletree North Asia Commercial Trust - A Glimmer Of Hope Emerges

Mapletree North Asia Commercial Trust's 1HFY21 DPU results tracking below estimates but poised to catch up in 2H21 given firmer fundamentals.
Office portfolios in China and Japan hold the fort as occupancies stay firm.
Valuations have suffered a slight dip, but P/NAV of 0.6x still offers compelling value for Mapletree North Asia Commercial Trust backed by a reputable sponsor.

Gross revenue for Mapletree North Asia Commercial Trust (SGX:RW0U) declined by 9.6% and 17.7% to S$190.1m and S$139.7m respectively. This was mainly driven by rental reliefs granted to tenants at Festival Walk (FW), lower reversions at FW and Gateway Plaza (GP) due to the COVID-19 outbreak.
Mapletree North Asia Commercial Trust also reported a lower occupancy rate at Gateway Plaza. This was mitigated by strong HKD, RMB and JPY vs the S$ and half-year contribution from the acquisition of MBP and Omori in Japan.
Distributable income dipped 21.8% to S$96.8m, translating into a 1H21 DPU of 2.876 cents (- 26% y-o-y).
While overall DPU performance is tracking below our estimates (c.43% of full-year DPU), a catch-up in 2H21 is dependent on the sales momentum, barring any further tightening measures.
Mapletree North Asia Commercial Trust's portfolio level performance remains mixed. Occupancy level remained stable at 96.6% with rental reversions negative in Festival Walk (-12% in 1HFY21, -10% in 1QFY21), Gateway Plaza (-4% in 1HFY21, -5% in 1QFY21) while Sandhill Plaza (+8% in 1HFY21, +7% in 1QFY21) and Japan properties (+5% in 1HFY21, +8% in 1QFY21) remained positive.

The manager conducted a half-year valuation exercise which reflected a c.4.8% dip in asset values, mainly coming from Festival Walk (-5.4%) and Gateway Plaza (-4.4%) while Sandhill Plaza and Japan properties remained stable.
Cap rates remain stable for most but saw a slight compression in Japan.
The drop in valuations resulted in a NAV decline to S$1.33/unit (vs S$1.39/unit previously) while gearing has inched up slightly to c.40%.

Gross revenue and NPI declined by c.33% and c.39% respectively in 1HFY21 mainly due to the rental reliefs granted and a lower average rental rate for retail at Festival Walk. In the quarter, the manager extended S$36.4m (S$18.1m in 1Q21) in rental reliefs (retail tenants), which we estimate to be c.27% of 1H21 (c.27% in 1Q21) normalised revenues.
Retail sales is down by 36.2% while footfall is down 45.5% in 1H21. While the mall generally saw lower trading performance, we understand that amongst the diverse trades in the mall, the F&B and supermarkets sectors are more resilient than the rest.
While trading performance was affected in June-July 2020 due to tightening measures and the second wave of COVID-19 outbreak, we note that with progressive easing of these measures, traffic and sales have rebounded gradually and are c.74.1% (sales) and c.53.2% (traffic) compared to a year ago.
The manager has also launched “My Festival” loyalty programme which we believe will lift retailers’ overall revenues and bring about repeat visits over time.

Derek TAN DBS Group Research | Geraldine WONG DBS Research | https://www.dbsvickers.com/ 2020-11-05

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