Mapletree North Asia Commercial Trust - CGS-CIMB Research 2021-01-29: Showing Improvement Q-o-q

MAPLETREE NORTH ASIA COMM TR (SGX:RW0U)

Mapletree North Asia Commercial Trust - Showing Improvement Q-o-q

Mapletree North Asia Commercial Trust's 3QFY21 revenue/NPI was broadly in line at 27.9%/27.2% of our FY21F forecasts.
Performance improved q-o-q across the portfolio; occupancy remains high.
Reiterate ADD with unchanged DDM-based target price of S$1.15.

In its 9MFY21 business update, Mapletree North Asia Commercial Trust (SGX:RW0U) reported 9MFY21 gross revenue and NPI of S$290.8m and S$215.4m respectively.
Stripping out 1HFY21 contributions, Mapletree North Asia Commercial Trust's 3QFY21 gross revenue/NPI would have been S$100.7m/S$75.7m, up 4.5%/6.2% q-o-q, thanks to contributions from new acquisitions in Japan and South Korea, and lower quantum of tenant rental reliefs at Festival Walk (FW), partly offset by negative rental reversion.
Interest expense was also lower y-o-y in 9MFY21 due to lower average funding cost.

Festival Walk saw its 9MFY21 tenant sales and shopper traffic decline 32.5% and 42.3% y-o-y, respectively, a slight improvement from the -36.2% and -45.5% in 1HFY21, due to the easing of restrictive measures. Occupancy was relatively stable at 98.9% at end-Dec 20. However, retail rental reversion averaged a larger -17% as management adopted a tenant retention strategy.
In 3QFY21, Mapletree North Asia Commercial Trust also introduced more new F&B concepts including four restaurants and six confectionary outlets. It also received additional interim insurance claims for property damage and revenue loss of HKS$59m (S$10.5m) in 3QFY21.
Going forward, with tighter social distancing measures re-imposed in HK SAR till 3 Feb 2021, the retail environment remains challenging and would likely continue to put pressure on rental reversions, in our view. Mapletree North Asia Commercial Trust has an estimated 2.7% and 13.3% of leases at Festival Walk to be renewed in 4QFY21F and FY22F respectively.

While China’s leasing environment remained challenging amid heightened supply, Gateway Plaza (GW) managed to increase its take-up to 92.9%, with -11% rental reversion in 9MFY21.
Sandhill Plaza (SP) continued to achieve higher average rents (+7% reversion in 9MFY21) due to robust demand for more affordable decentralised office space.
Japan portfolio occupancy improved to 97.9% in 9MFY21 on +3% rental reversion.
The recently-acquired Pinnacle Gangnam (50% stake) in Seoul reported higher occupancy of 97.5%.
Looking ahead, Mapletree North Asia Commercial Trust has a total 2.7% and 6.7% of portfolio leases to be renewed from its China, Japan and South Korea properties in 4QFY21F and FY22F respectively. We anticipate demand for decentralised office spaces at Sandhill Plaza in Shanghai and take-up from high-growth industries, such as IT and pharmaceutical, to continue to bolster the performance of its office properties.

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We leave our Mapletree North Asia Commercial Trust's FY21-23F DPU estimates unchanged. Our DDM-based target price remains unchanged at S$1.15. Maintain ADD with potential FY21F dividend yield of 6.2%.
Potential re-rating catalyst: faster-than-expected recovery in Festival Walk’s operations.
Downside risk: 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 2021-01-29

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