The second Mapletree REIT in my long-term investment portfolio, Mapletree North Asia Commercial Trust (SGX:RW0U), released its business update for the first quarter of the financial year 2020/21 ended 30 June 2020 on Monday evening (27 July) after market hours.
Similar to Mapletree Commercial Trust, with effect from this financial year onwards, the REIT will only be reporting business updates in the first and third quarters of the financial year. They will also be paying out distributions to unitholders on a semi-annual basis (hence there will be no distribution payouts declared for the quarter under review.)
In today’s post, you will find some of the most important pointers to take note of (if you are a unitholder of the REIT), along with some of my personal thoughts to share (for educational purposes only.)
Financial Summary (Q1 FY2019/20 vs. Q1 FY2020/21)
The REIT only provided its gross revenue and net property income for the quarter ended 30 June 2020 (i.e. Q1 FY2020/21). Additionally, I have also computed the REIT’s property operating expenses accordingly.
In the table below, I will be comparing the three financial statistics against the same time period last financial year (i.e. Q1 FY2019/20):
| Q1 FY2019/20 | Q1 FY2020/21 | % Variance | |
| Gross Revenue (S$’mil) | $104.9m | $93.7m | -10.7% |
| Property Operating Expenses (S$’mil) | $19.8m | $25.2m | +27.0% |
| Net Property Income (S$’mil) | $85.0m | $68.5m | -19.5% |
In the REIT’s presentation slides and press release, I understand that the decline in both its gross revenue and net property income can be attributed to rental reliefs granted to tenants of Festival Walk, along with a lower average rental rate of the retail mall (there are no office renewals in Festival Walk in the first quarter of FY2020/21) – both due to the Covid-19 pandemic, as well as a lower average occupancy at Gateway Plaza.
In terms of the individual properties’ contribution to the REIT’s overall gross revenue in Q1 FY2020/21, they are as follows:
- Festival Walk: 46%
- Gateway Plaza: 21%
- Sandhill Plaza: 7%
- Japan Properties: 26%
My Thoughts: Not surprising to see this set of financial statistics being reported by the REIT as during the AGM earlier in the month (you can read the summary I have compiled here), the management already pre-empted unitholders that this financial year’s results will be a weaker one.
Debt Profile (Q4 FY2019/20 vs. Q1 FY2020/21)
In this section, let us take a look at the REIT’s debt profile for the current quarter under review (i.e. Q1 FY2020/21 ended 30 June 2020), and compare against its debt profile reported in the last quarter (i.e. Q4 FY2019/20 ended 31 March 2020) to find out if it has improved or deteriorated 3-months on:
| Q4 FY2019/20 | Q1 FY2020/21 | |
| Aggregate Leverage (%) | 39.3% | 39.6% |
| Interest Cover Ratio (times) | 2.7x | 3.6x |
| Average Term to Debt Maturity (years) | 3.35 years | 3.05 years |
| Average Cost of Debt (%) | 2.33% | 2.17% |
My Thoughts: While its average cost of debt have come down slightly, along with its interest cover ratio going up at the same time, its gearing ratio have inched up slightly compared to three months ago.
Given the regulatory limit now at 50.0%, there is still some debt headroom with its gearing ratio at 39.6% as at 30 June 2020.
Portfolio Occupancy Profile (Q4 FY2019/20 vs. Q1 FY2020/21)
Moving on, let us take a look at each individual properties’ occupancy rate, along with their rental reversions for the current quarter under review, compared to that recorded in the previous quarter:
| Q4 FY2019/20 | Q1 FY2020/21 | |
| Festival Walk (Occupancy Rate) | 99.8% | 99.3% |
| Festival Walk (Rental Reversion) | +8.0% | -10.0% |
| Gateway Plaza (Occupancy Rate) | 91.5% | 91.4% |
| Gateway Plaza (Rental Reversion) | -4.0% | -5.0% |
| Sandhill Plaza (Occupancy Rate) | 98.0% | 96.3% |
| Sandhill Plaza (Rental Reversion) | +10.0% | +7.0% |
| Japan Properties (Occupancy Rate) | 94.7% | 97.7% |
| Japan Properties (Rental Reversion) | -9.0% | +8.0% |
My Thoughts: While Festival Walk and Gateway Plaza saw a lower occupancy rate and a even lower rental reversion on the renewal of expiring rents, bright spots can be seen in Sandhill Plaza (which continue to record a positive rental reversion), and in the Japan properties (which have recorded improvements in its occupancy rate, as well as in its rental reversion.)
Personally, the REIT’s occupancy profile for the quarter under review was within my expectations – as the management provided a guidance during its AGM that Festival Walk and Gateway Plaza will continue to remain weak in the year ahead – the former due to headwinds relating to Covid-19, while the latter due to sluggish economic outlook.
In Conclusion
In case you’re not already aware, in a report on Monday (27 July) by The Edge Singapore (you can read the report in full here), I understand that as a result of the continued increase in the number of Covid-19 cases reported in Hong Kong, the government will once again impose restrictions in temporarily suspending all dining-in services at restaurants, as well as limiting public gatherings to not more than two persons starting today (29 July.) At the same time, sports venues, swimming pools, gyms, bars, and beauty parlours will have to temporarily shut as well. The Hong Kong government will also make it mandatory for all to put on a mask when out in public places. All the restrictions will last for a week before they are being reviewed.
This latest set of restrictions will definitely impact Festival Walk’s footfall and tenant sales in the near-term in my opinion.
Also, I am of the opinion that unless Covid-19 is contained (either the number of reported cases daily fall back to zero and remain that way, or that a vaccine is found), the ongoing pandemic will continue to affect Festival Walk’s gross revenue and net property income contribution. Also, because of the fact that this single mall contributes a lion’s share towards the REIT’s gross revenue and net property income, the retail mall’s weakness will negatively impact the REIT’s overall performance.
That said, I will continue to monitor the progress of the Covid-19 situation in Hong Kong, along with any latest announcements which may be released by the REIT moving forward.
Related Documents
Disclaimer: At the time of writing, I am a unitholder of Mapletree North Asia Commercial Trust.
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