Mapletree North Asia Commercial Trust - CGS-CIMB Research 2021-04-23: Office Segment Continues To Hold Up Well

MAPLETREE NORTH ASIA COMM TR (SGX:RW0U)

Mapletree North Asia Commercial Trust - Office Segment Continues To Hold Up Well

Mapletree North Asia Commercial Trust's 2HFY21 and FY21 DPU of S$0.03299 and S$0.06175, respectively, beat our estimates, at 54.7% and 102.3% of our FY21F forecasts.
Portfolio occupancy is stable, but pressure on rental reversions remains.
Reiterate ADD, with an unchanged DDM-based target price of S$1.15.

Mapletree North Asia Commercial Trust (SGX:RW0U) reported a 39.7%/ 8.8% y-o-y higher 2HFY21 (Oct 2020 to Mar 2021) gross revenue/ NPI of S$201.3m/ S$113.3m (DPU: S$0.03299, +1.9% y-o-y), due to lower rental relief at Festival Walk (FW), contributions from new acquisitions in Japan and Seoul, and lower interest costs, partly offset by lower average rents at Festival Walk and Gateway Plaza (GW).
Mapletree North Asia Commercial Trust's FY21 DPU of S$0.06175 was 13.3% lower y-o-y, mainly due to rental reliefs granted to Festival Walk retail tenants.
Mapletree North Asia Commercial Trust took a S$480.9m revaluation deficit and lowered book value per unit to S$1.274. Aggregate leverage stood at 41.5% as at end-FY3/21.

While Festival Walk saw a 32.1% and 30.9% y-o-y decline in tenant sales and shopper traffic, respectively, for FY21, 4QFY21 tenant sales improved 21.8% y-o-y due to progressive easing of restrictive COVID-19 measures and a low base effect of weak retail sales in 4QFY20. Retail rental reversion averaged -21% for FY21 as management adopted a tenant retention strategy. Mapletree North Asia Commercial Trust provided S$14.9m of tenant rental relief in 2HFY21 (vs. S$34.9m in 1HFY21).
To enhance Festival Walk resilience, Mapletree North Asia Commercial Trust recruited more brands and also converted some apparel shops into resilient trades, such as F&B.
Mapletree North Asia Commercial Trust indicated that it expects negative reversion at Festival Walk to persist into FY22. As such, we lower our rental reversion projection to -15% (from -5%) and assume 0.5 months of tenant rental relief (previously 0 months) for FY22F.
Mapletree North Asia Commercial Trust has an estimated 14.6%/11% of leases at Festival Walk to be renewed in FY22/FY23.

While China’s leasing environment remained challenging amid heightened supply,
- Gateway Plaza managed to maintain its take-up at 92.9%, with a -7% rental reversion in FY21.
- Sandhill Plaza (SP) in Shanghai continued to achieve higher average rents (+5% reversion in FY21) due to robust demand for more affordable decentralised office space.
Japan portfolio occupancy remained stable at 97.8% in FY21 on a +2% rental reversion.
The recently-acquired Pinnacle Gangnam (50% stake) in Seoul reported occupancy of 96.5%.
Looking ahead, Mapletree North Asia Commercial Trust has a total 7.6% and 18.1% of its portfolio leases to be renewed from its China, Japan and South Korea properties in FY22F and FY23F, respectively. We anticipate demand for decentralised office spaces at Sandhill Plaza and take-up from high-growth industries, such as IT, biomed and pharmaceuticals, to continue to bolster the performance of its office properties.

We update our FY22-23F DPU estimates of Mapletree North Asia Commercial Trust post-results to reflect a change in rental reversion assumptions for Festival Walk. Our DDM-based target price for Mapletree North Asia Commercial Trust is unchanged at S$1.15. Reiterate ADD with a potential FY22F dividend yield of 6.5%.
See
Potential re-rating catalyst: faster-than-expected recovery in Festival Walk.
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 2021-04-23

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