Mapletree North Asia Commercial Trust - OCBC Investment 2022-04-21: Time To Lock In Profits

MAPLETREE NORTH ASIA COMM TR (SGX:RW0U)

Mapletree North Asia Commercial Trust - Time To Lock In Profits

Mapletree North Asia Commercial Trust's 2HFY22 distribution per unit (DPU) rose 2.8% y-o-y to S$0.03393.
Recovery stifled by fifth COVID-19 wave in Hong Kong.
Additional rental reliefs given in 4QFY22, but relaxation of social distancing measures to help.

Mapletree North Asia Commercial Trust (SGX:RW0U) reported its 2HFY22 results which met our expectations. Gross revenue and net property income (NPI) rose 4.9% and 5.1% y-o-y to S$211.2m and S$160.1m, respectively, while DPU increased 2.8% y-o-y to S$0.03393. This included a one-off distribution top-up of S$3.5m from net insurance proceeds. Excluding this, we estimate that 2HFY22 DPU would instead have inched down 0.2% to S$0.03292.
For the full-year FY22, Mapletree North Asia Commercial Trust’s NPI jumped 10.2% to S$321.9m. DPU grew 10.4% to S$0.06819 and this formed 101.6% of our forecast.
The improvement in performance was driven largely by contribution from the acquisition of Hewlett-Packard Japan Headquarters Building and lower rental reliefs (FY22: S$14.7m versus FY21: S$49.8m). However, we note that the bulk of the rental assistance was given in 4QFY22 (~S$10m) due to the fifth COVID-19 wave in Hong Kong.
Although the number of daily infection cases has declined significantly, we believe the situation remains fluid, and future rental reliefs are possible should the caseloads increase again.

The fifth wave in Hong Kong resulted in Festival Walk’s tenants’ sales declining by 27.5% y-o-y in 4QFY22, although overall tenants’ sales and shopper traffic were up by 8.7% and 11.5%, respectively, for the full-year FY22. There were also some encouraging signs for Festival Walk’s rental reversions, which came in at -27% for FY22, but narrowed to -18% for 4QFY22 versus -32% in 9MFY22.
Management remains hopeful that rental reversions might bottom out ahead, given lower base effects and gradual loosening of social distancing measures in Hong Kong from 21 Apr 2022 (e.g. dine-in services extended from 6pm to 10pm; number of pax per table increased from two to four).
Rental reversions came in at -24% for Gateway Plaza but were positive for its other assets: Sandhill Plaza +5%, Japan Properties +1% and The Pinnacle Gangnam (TPG) +44%. TPG saw an acceleration in rental uplifts as average rental reversion was only +28% for 9MFY22.

In terms of financial position, Mapletree North Asia Commercial Trust’s aggregate leverage ratio improved from 42.1% (as at 30 Sep 2021) to 41.5%. We lower our fair value estimate for Mapletree North Asia Commercial Trust slightly to S$1.05 (previously S$1.06) after increasing our risk-free rate assumption to 2.5%, although our FY23 DPU forecast is raised by 1.3%.
Given that Mapletree North Asia Commercial Trust’s last closing price of S$1.23 (as at 20 Apr 2022) is above the implied Trust Scheme offer price of S$1.1949 and close to this offer price plus the declared 2HFY22 DPU of S$0.03393, we believe unitholders can consider locking in profits.
While we cannot rule out an improved offer from Mapletree Commercial Trust (SGX:N2IU) or a higher competing bid, we believe both scenarios are unlikely.
See

OCBC Research Team OCBC Investment Research | https://www.iocbc.com/ 2022-04-21

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