After market hours yesterday (29 Oct 2020), another Mapletree REIT in my long-term investment portfolio (in Mapletree North Asia Commercial Trust – SGX:RW0U) released its financial results for the first half of the financial year 2020/21 (the REIT has a financial year-end every 31 March.)

In this post, you will find the good and the bad (along with my personal opinions to share) about the REIT’s latest set of financial results, debt and portfolio occupancy profile, as well as distribution payouts.

Let’s get started…

Financial Results (1H FY2019/20 vs. 1H FY2020/21 and Q2 FY2019/20 vs. Q2 FY2020/21)

In this section, I will be looking at the REIT’s latest financial results on a year-on-year (y-o-y) basis, on a quarter-on-quarter (q-o-q) basis (which I have manually computed based on updates it has provided in the first quarter, and you can read about it here), along with whether or not there are any improvements in its financial results compared to the previous quarter (i.e. I will be comparing its results recorded in the first quarter of FY2020/21 against its results recorded in the second quarter of FY2020/21):

1H FY2019/20 vs. 1H FY2020/21:

1H FY2019/201H FY2020/21% Variance
Gross Revenue
(S$’mil)		$210.4m$190.1m-9.6%
Property Operating
Expenses (S$’mil)		$40.6m$50.4m+24.0%
Net Property
Income (S$’mil)		$169.8m$139.7m-17.7%
Distributable
Income to
Unitholders (S$’mil)		$123.8m$96.8m-21.8%

On a y-o-y basis, the latest set of financial results was a weaker one for the REIT – the 9.6% decline in its gross revenue was due to rental reliefs (of S$35.3m) granted to tenants (mainly at Festival Walk’s retail) as a result of the Covid-19 impact, along with lower average rental rates at Festival Walk and Gateway Plaza, offset by contributions from the newly acquired MBP and Omori (on 28 February 2020), along with higher average rates of Hong Kong Dollar, Japanese Yen, and Renminbi against the Singapore dollar.

At the same time, its property operating expenses climbed by 24.0% on a y-o-y basis, mainly due to expenses from the newly acquired MBP and Omori.

With that, the REIT’s net property income and distributable income to unitholders fell by 17.7% and 21.8% respectively.

Q2 FY2019/20 vs. Q2 FY2020/21:

Q2 FY2019/20Q2 FY2020/21% Variance
Gross Revenue
(S$’mil)		$105.5m$96.4m-8.6%
Property Operating
Expenses (S$’mil)		$20.8m$25.2m+21.2%
Net Property
Income (S$’mil)		$84.7m$71.2m-15.9%

Similar to its results on a y-o-y basis, the REIT’s top- and bottom-line results weakened on a q-o-q.

Q1 FY2020/21 vs. Q2 FY2020/21:

Personally, its not all gloomy for the REIT in my opinion (as far as its financial results are concerned) – if we compare the percentage of decline in the previous quarter (i.e. Q1 FY2020/21) against the current quarter (i.e. Q2 FY2020/21), it is lesser – particularly, its gross revenue suffered a 10.7% q-o-q decline in Q1 vs a 8.6% decline in Q2; its net property income fell by 19.5% on a q-o-q basis in Q1 vs. a 15.9% dip in Q2.

My Thoughts: While on a y-o-y and on a q-o-q basis, the REIT’s latest set of results was a weaker one, but when compared to the previous quarter, the decline is lesser.

Even though the REIT’s results is likely to continue to remain weak in the remaining quarters of the current financial year 2020/21, but I am of the opinion that, barring another wave of Covid-19 outbreak in countries where the REIT has properties in, we are past the worst (in Q1 FY2020/21), and results should slowly improve from there (albeit slowly.)

Debt Profile (Q1 FY2020/21 vs. Q2 FY2020/21)

Moving on, let us take a look at the REIT’s debt profile recorded in Q2 FY2020/21 (ended 30 September 2020), and compare against its debt profile recorded 3 months ago (i.e. Q1 FY2020/21 ended 30 June 2020) to find out if it has improved or deteriorated:

Q1 FY2020/21Q2 FY2020/21
Gearing Ratio
(%)		39.6%40.1%
Interest Coverage
Ratio (times)		3.6x3.0x
Average Term to
Debt Maturity (years)		3.05 years3.07 years
Average Cost of
Debt (%)		2.17%2.09%

My Thoughts: The REIT’s gearing ratio edged up by 0.5 percentage points (pp) to 40.1% in Q2 FY2020/21, as a result of a lower portfolio valuation – this, in my opinion, is on the high side, even though it is still some distance away from the 50.0% regulatory limit. At the same time, its interest coverage ratio have also declined.

On the other hand, as a result of lower benchmark interest rates, its average cost of debt have inched down by 0.08pp compared to 3 months ago to 2.09%.

For the remainder of FY2020/21, about S$78m of debt (which is about 2% of its total gross debt) is due for refinancing by March 2021.

I will continue to monitor its debt profile in the quarters ahead.

Portfolio Occupancy Profile (Q1 FY2020/21 vs. Q2 FY2020/21)

Just like how I have reviewed the REIT’s debt profile (in the previous section), in the table below, you will find its portfolio occupancy profile recorded in the current quarter under review (i.e. Q2 FY2020/21 ended 30 September 2020) against the first quarter (i.e. Q1 FY2020/21 ended 30 June 2020):

Q1 FY2020/21Q2 FY2020/21
Portfolio Occupancy
(%)		96.4%96.6%
Portfolio Weighted
Average Lease Expiry
(years)		2.6 years2.5 years
Rental Reversion
– Festival Walk (Retail)		-10.0%-12.0%
– Gateway Plaza-5.0%-9.0%
– Sandhill Plaza+7.0%+8.0%
– Japan Properties+8.0%+5.0%

My Thoughts: Rental reversion rates for lease renewals in Q2 FY2020/21 were negative (and worse off compared to last quarter) in Festival Walk (Retail), as well as in Gateway Plaza.

While the REIT’s Japan Properties continue to record a positive rental reversion, it is lower compared to the previous quarter. Only Sandhill Plaza saw improvements in its rental reversion (compared to the previous quarter.)

In case you’re wondering about the rental reversion for Festival Walk (Office), there are no lease renewals made, and hence I have excluded it from the table.

Looking ahead, I personally feel that the REIT’s portfolio occupancy profile will remain weak in the remaining quarters of the current financial year, given the challenges posed by the ongoing Covid-19 pandemic, and I will continue to closely monitor any developments ahead.

Distribution Per Unit (1H FY2019/20 vs. 1H FY2020/21)

With effect from the current financial year, the REIT have switched its distribution payout frequency from quarterly to half-yearly (hence there wasn’t any distribution payout for the first quarter of FY2020/21.)

Let us take a look at its distribution payout on a y-o-y basis:

1H FY2019/201H FY2020/21% Variance
Distribution Per
Unit (S$’cents)		3.887 cents2.876 cents-26.0%

If you are a unitholder of the REIT, you may want to take note of the following dates:

Ex-date: 05 November 2020
Record date: 06 November 2020 at 17.00hrs
Payout date: 28 December 2020

However, instead of receiving cash payout (which is the default option), you would like to receive your distributions in a form of units of the REIT, you can find out how you can opt in here.

In Conclusion

The REIT’s latest updates was indeed a weaker one – from its financial results to its debt and portfolio occupancy profile. The only green shoot was that, compared to the previous quarter, the decline was lesser.

In terms of outlook, I personally feel that in the remaining quarters of the current financial year, the REIT’s results will continue to remain weak. As for the next financial year, I am of the opinion that it will very much depend on the situation of Covid-19 in countries that the REIT has properties in at that point in time.

With that, I have come to the end of my review of the REIT’s latest financial results. Please do your own due diligence before you make any investment decisions as this share is purely meant for educational purposes only, and they do not represent any buy or sell recommendations for the REIT’s units.

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

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