Mention about Mapletree North Asia Commercial Trust (SGX:RW0U), and you’ll immediately recall its Festival Walk property in Hong Kong, and the negative news surrounding it a couple of months back (where the anti-government protestors in the country wrecked damages to the mall, and it had to be closed between 13 November 2019 and 16 January 2020 for repair works.) Another concern that comes to mind is the REIT’s revenue concentration on this one single property.

Despite of all the negativities surrounding it, why did I still choose to add this REIT to my long-term investment portfolio? Also, when will I be re-considering my position in this REIT?

You’ll find answers to the above questions in my writeup about the REIT today, along with my reasons for adding it to my long-term portfolio…

Brief Introduction to Mapletree North Asia Commercial Trust

Before I look at the REIT’s financial performance, portfolio and debt profile, and distribution payouts to unitholders, let me first do a brief introduction about the REIT.

As at 31 December 2019 (which is the end of 3Q FY2020 – as the REIT’s financial year ends on 31 March), the REIT’s portfolio consists of the following properties (along with their contribution towards the REIT’s total revenue in 3Q FY2020 in brackets):

  • Festival Walk in Hong Kong (56%)
  • Gateway Plaza in Beijing, China (23%)
  • Sandhill Plaza in Shanghai, China (8%)
  • 6 Japan properties – IXINAL Monzen-nakacho building in Tokyo, Higashi-nihonbashi 1-chrome building in Tokyo, TS Ikebukuro Building in Tokyo, ABAS Shin-Yokohama Building in Yokohama, SII Makuhari Building in Chiba, and Makuhari Building in Chiba (13%)

To reduce the revenue concentration on Festival Walk in Hong Kong, the management have announced on 04 December 2019 the proposed acquisition of 2 office properties in Japan:

  • mBay Point Makuhari Building in Chiba
  • Omori Prime Building in Tokyo

The acquisition will increase Japan’s total revenue contribution to about 17%.

Historical Financial Results of Mapletree North Asia Commercial Trust

As the REIT was only listed on the Singapore stock exchange on 07 March 2013, and that it has a financial year end on 31 March, in this section, I will be looking at its full-year post-IPO results between FY2013/14 and FY2018/19 (a total of 6 financial years), along with a year-on-year (y-o-y) comparison of its financial results in the current financial year (i.e. 9M FY2018/19 vs. 9M FY2019/20:

Full-Year Post- IPO Results between FY2013/14 to FY2018/19

The following table is the REIT’s gross revenue, net property income, and distributable income to unitholders over the past 6 financial years:

FY
2013/14
FY
2014/15
FY
2015/16
FY
2016/17
FY
2017/18
FY
2018/19
Gross
Revenue
(S$’mil)
$268m$281m$337m$351m$355m$409m
Net
Property
Income
(S$’mil)
$216m$229m$277m$286m$287m$329m
Distributable
Income to
Unitholders
(S$’mil)
$168m$178m$200m$205m$211m$241m

Mapletree North Asia Commercial Trust's Historical Financial Performance between FY2013/14 and FY2018/19

Gross Revenue: Since post-IPO, its revenue have recorded y-o-y improvements every single financial year, where it has grown from S$268m in FY2013/14 to S$409m in FY2018/19 – a compound annual growth rate (CAGR) of 7.3% in 6 financial years.

Net Property Income: In-line with improvements in the REIT’s gross revenue, its net property income also climbed every single year – from S$216m in FY2013/14 to S$329m in FY2018/19, a CAGR of 7.3% as well.

Distributable Income to Unitholders: Finally, its distributable income to unitholders also grew at a CAGR of 6.2%, with improvements recorded every single financial year.

9M FY2018/19 vs. 9M FY2019/20

Let us now take a look at the REIT’s performance so far this year (compared with the same period last year):

9M FY
2018/19
9M FY
2019/20
%
Change
Gross
Revenue
(S$’mil)
$305m$278m-8.9%
Net
Property
Income
(S$’mil)
$245m$221m-9.8%
Distributable
Income to
Unitholders
(S$’mil)
$179m$177m-1.1%

The y-o-y drop in its top- and bottom-line performance can be attributed to a weaker set of results reported in the 3rd quarter (both first and second quarter of the current financial year saw y-o-y improvements), due to the following reasons:

  • Lower income from main income contributor, Festival Walk in Hong Kong, as a result of rent relief granted and the closure of the mall between 13 November 2019 to 16 January 2020 for repair works
  • Lower revenue from one of the Japan properties due to expiry of the single tenancy for the building, and conversion into multi-tenancies
  • Lower revenue from Gateway Plaza due to lower average occupancy
  • Lower rate of HKD and RMB

My Thoughts: A pretty significant drop in the REIT’s 3rd quarter results for the current financial year (where on a quarter-on-quarter basis, its gross revenue was down by 36.3%, net property income by 40.0%, and distributable income to unitholders by 12.5%.) Coupled with the ongoing Covid-19 situation, it is very likely that, for the first time since post-IPO, it is highly likely that the REIT’s year-on-year results for the financial year ending 31 March 2020 will be a weaker one.

Having said that, I must say I’m impressed with the REIT’s y-o-y financial results since post-IPO, which is one of the reasons why I’ve decided to invest in the REIT.

Mapletree North Asia Commercial Trust’s Portfolio Occupancy Profile since Post-IPO

Besides studying the REIT’s financial performance over the years, another area I focus my attention on (when studying about a REIT) is the occupancy rate of its properties under its portfolio.

The following table is Mapletree North Asia Commercial Trust’s portfolio occupancy profile between FY2013/14 and FY2018/19:

FY
2013/14
FY
2014/15
FY
2015/16
FY
2016/17
FY
2017/18
FY
2018/19
Occupancy
Rate (%)
98.5%98.8%98.6%98.6%98.5%99.6%
Weighted
Average
Lease
Expiry
(by Gross
Rental
Income –
in years)
2.5
years
2.4
years
2.6
years
2.5
years
2.6
years
2.8
years

Mapletree North Asia Commercial Trust's Portfolio Occupancy Rate between FY2013/14 and FY2018/19

My Observations: The REIT’s portfolio occupancy rate, along with its weighted average lease expiry have remained consistent over the years.

Its occupancy occupancy rate have also remained at above 98.5% throughout the 6 financial years post-IPO, which is something I like.

The REIT’s portfolio occupancy rate have also continued to remain resilient in the current financial year – at the end of 3Q FY2019/20 (ended 31 December 2019), its portfolio occupancy rate is at 99.7%, while its weighted average lease expiry is at 2.9 years.

Debt Profile of Mapletree North Asia Commercial Trust between FY2013/14 and FY2018/19

Before I invest in any company (especially for the long-term), I will first make sure that the company is not overly leveraged (meaning taking on too much debt than it can handle.)

In this section, let us take a look at Mapletree North Asia Commercial Trust’s debt profile over the last 6 financial years in the table below:

FY
2013/14
FY
2014/15
FY
2015/16
FY
2016/17
FY
2017/18
FY
2018/19
Gearing
Ratio
(%)
38.0%36.2%39.5%39.2%36.2%36.6%
Interest
Coverage
Ratio
(times)
4.6x5.0x3.9x3.6x3.9x4.2x
Average
Term to
Debt
Maturity
(in
Years)
3.0
years
2.8
years
3.0
years
3.7
years
3.4
years
3.7
years
Average
Cost of
Debt (%)
2.0%1.8%2.4%2.7%2.7%2.5%

My Observations: In terms of the REIT’s gearing ratio, it has largely remained at around 36.0%, and at the end of 3Q FY2019/20 (ended 31 December 2019), its gearing ratio is at 37.1%. I personally feel that its debt profile is pretty conservative. Also, with its gearing ratio at 37.1% at the end of 3Q FY2019/20, it suggests that there is still ample debt headroom for the REIT to make further yield accretive acquisitions to further reduce the revenue concentration of Festival Walk towards the REIT’s overall gross revenue, before the gearing ratio reaches the regulatory limit of 45.0%.

Looking also at the REIT’s average term to debt maturity, and also its average cost of debt, it has been consistent over the years.

Mapletree North Asia Commercial Trust’s Distribution Payout to Unitholders since Post-IPO

Finally, let us take a look at Mapletree North Asia Commercial Trust’s distribution payout to unitholders between FY2013/14 and FY2018/19.

I like the REIT for the fact that they pay out a distribution to unitholders on a quarterly basis (meaning I can expect to receive some “pocket money” from the REIT every 3 months.)

With that, let us now take a look at its distribution payout to unitholders over the years:

FY
2013/14
FY
2014/15
FY
2015/16
FY
2016/17
FY
2017/18
FY
2018/19
Distribution
Per Unit
(S$’cents)
6.28
cents
6.56
cents
7.27
cents
7.341
cents
7.481
cents
7.690
cents

Mapletree North Asia Commercial Trust's Distribution Per Unit between FY2013/14 and FY2018/19

Since FY2013/14, the REIT has been increasing its distribution payouts to unitholders – where it went up from 6.28 cents/unit in FY2013/14 to 7.690 cents/unit in FY2018/19 – a CAGR of 3.4%.

My Thoughts: Its increasing distribution payouts over the years is another reason why I’ve added the REIT to my long-term investment portfolio.

In Conclusion

What’s not to like about the REIT? Growth in its financial results since post-IPO, a stable portfolio occupancy and debt profile, plus increasing distribution payouts to unitholders are reasons why I’ve invested in the REIT.

I understand the concerns some of you may have surrounding Festival Walk – as it contributes more than half of the REIT’s overall revenue, along with the unrest in Hong Kong.

For the former, the REIT’s management have been taking steps to try and reduce the revenue contribution of Festival Walk, by announcing the proposed acquisition of the 2 Japan office buildings. I am looking forward to the REIT’s management announcing more acquisition in the future (looking at its current gearing ratio, there is definitely room for more acquisitions to be made.) I see further acquisition announcements a plus for the REIT, and a catalyst to its unit price movements.

For the latter, I understand that the REIT have stepped up its measures to prevent a similar incident from happening. That said, I also understand that there is only so much the REIT’s management can do to prevent the mall from another similar-scale attack. Since the outbreak of Covid-19 in Hong Kong, the anti-government protest activities in the country seem to have cooled down. I will continue to keep tabs on the situation moving forward. Should there be another round of anti-government protests of a similar scale in the future, and that there are no signs of stopping them once again, I may consider divesting my unitholdings in the REIT.

If you have been following my long-term investment portfolio updates, you are probably aware that the unit price have gone down significantly from my initial investment price at S$1.07 (based on this unit price, and a distribution per unit of 7.690 cents/unit in FY2018/19, the distribution yield is 7.2%, which is very good in my opinion.)

Many are probably wondering if I will be buying more of the REIT’s units to average down my initial investment price (and in so doing, also increase the yield) – my answer is yes, but not at this point in time, as I feel that, due to the unit price volatility as a result of the Covid-19 outbreak, the REIT’s unit price is likely to further weaken in the near-term. I will rely on technical analysis to determine my average down price after the drop in unit price have stabilised.

Disclaimer: At the time of writing, I am a unitholder of Mapletree North Asia Commercial Trust.

 

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