Mapletree North Asia Commercial Trust - CGS-CIMB Research 2021-05-26: Expanding Japan Footprint

MAPLETREE NORTH ASIA COMM TR (SGX:RW0U)

Mapletree North Asia Commercial Trust - Expanding Japan Footprint

Mapletree North Asia Commercial Trust proposes to buy a Japan office building based on an agreed value of S$474.7m.
Purchase will likely enhance portfolio resilience and is DPU-accretive.
Reiterate ADD with a DDM-based target price of S$1.15.

Mapletree North Asia Commercial Trust (SGX:RW0U) proposed the acquisition of a 98.47% stake in an office property in Koto-ku, Japan, for S$467.5m (based on an agreed property value of S$474.7m). The building, with 42,496 sqm of gross floor area, is single-tenanted by Hewlett-Packard Japan (HPJ) as its HQ, with a balance lease term of 8.8 years as at Mar 2021.
While the lease structure does not come with inbuilt rental escalations, management indicated that the passing rent of the property is below current market rates.
The property is well-located, within an eight-minute walk from the nearest Sumiyoshi train station and 15 minutes by train to Tokyo Station. Completion of the transaction is estimated to be by 30 Jun 2021.

The deal will deepen Mapletree North Asia Commercial Trust’s footprint in the more stable Japan market with this market making up 27%/21% of the expanded NPI and AUM base.
According to property consultant JLL K.K., the Japan office market continues to have one of the widest yield spreads over its 10-year government bond yield, compared to other Asia markets.
The purchase will also enhance Mapletree North Asia Commercial Trust’s portfolio resilience with tenants in the IT sector, accounting for an estimated 9.6% of rental income (vs. 5.1% previously). Post-acquisition, HPJ is expected to be the third-largest tenant, by gross rental income, in Mapletree North Asia Commercial Trust’s enlarged portfolio.
With the addition of this fully-tenanted building, Mapletree North Asia Commercial Trust's portfolio occupancy is expected to tick up to 97.2%, while weighted average lease expiry (WALE) is extended to 2.6 years.

The total transaction cost of S$490.6m is expected to be funded by a combination of debt and issuance of perpetual securities. Based on an initial net property income yield of 3.6%, the proforma DPU accretion is estimated to be 2.4%, assuming a 49%/51% debt/perpetual securities funding combination.
Post-acquisition, Mapletree North Asia Commercial Trust's gearing is estimated to creep up marginally to 41.9% (from 41.5% as at Mar 2021).

LOCK Mun Yee CGS-CIMB Research | EING Kar Mei CFA CGS-CIMB Research | https://www.cgs-cimb.com 2021-05-26

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