Mapletree North Asia Commercial Trust (SGX:RW0U), with retail and office properties in Hong Kong, China, Japan, as well as in South Korea, published its latest annual report for the financial year 2020/21 ended 31 March 2021 this morning (23 June 2021), along with a notice of its upcoming annual general meeting (AGM.)
Being a unitholder of this Mapletree REIT, I have studied the report to learn about the latest updates and/or developments, and, as usual, in this post, you will find notes I have taken (and sharing for the benefit of those who do not have the time to go through the entire report), details about its upcoming AGM (along with a question I have submitted for the REIT’s management), along with my personal thoughts (about the REIT’s prospects in the financial year ahead) to share.
Letter to Unitholders by Chairman Mr Paul Ma Ka Woh, and CEO Ms Cindy Chow Pei Pei
Navigating through the Covid-19 Pandemic:
- Rental rebates amounting to S$50.5m were issued to help affected tenants. On top of that, the REIT have adopted flexible leasing strategies to retain existing tenants (as some of them were understandably hesitant to commit to long-term leases in light of the uncertainty surround the ongoing pandemic situation), as well as to attract new ones – this contributed to the REIT’s ability to maintain a high portfolio occupancy rate of 97.0% as at the end of FY2020/21.
- Also, to help cushion the impact of Covid-19 on the REIT’s distribution to unitholders, the Manager accelerated the REIT’s pace of acquisition growth and income diversification with the acquisition of 2 office properties in Greater Tokyo (namely MBP and Omori) in February 2020 (which played a part in the REIT reporting an improved set of full-year results compared to last year), and co-invested with its Sponsor in The Pinnacle Gangnam (an office building in Seoul, South Korea.)
- For the REIT’s employees, to help them defray additional costs incurred by them working from home, or remotely, the Sponsor provided a $500 subsidy or equivalent to all employees worldwide across the Mapletree Group in November 2020.
- To help its retail tenants (in Festival Walk retail mall) improve their sales (amid the safe distancing measures in place), the REIT have tied up with Deliveroo to boost sales of takeaway and delivery orders of its F&B tenants, as well as refreshed its Festival Walk mobile app to notify app users of the latest happenings and promotions, along with the introduction of a new loyalty programme to reward shoppers for their spending at the mall.
- Finally, in terms of the occupancy rates of the REIT’s office spaces, it was noted that a huge proportion of its tenants’ employees would return to work at their offices, especially with the easing of restrictive measures as infection cases subside.
FY2020/21 Performance Highlights:
- The REIT’s gross revenue and net property income improved by 10.4% and 5.2% to S$391.4m (FY2019/20: S$354.5m) and S$292.0m (FY2019/20: S$277.5m) respectively as a result of full-year contributions from the 2 newly acquired office properties in Japan (in MBP and Omori), along with a low base effect as there were a couple of months in FY2019/20 where no rentals were collected from the tenants of Festival Walk due to its temporary closure (as a result of damages caused by the anti-government protestors.) However, the increase was offset by rental reliefs granted to support its tenants affected by the pandemic, as well as lower average rental rates at Festival Walk and Gateway Plaza.
- Distribution Per Unit (DPU), however, was 13.3% lower compared to last year (6.175 cents/unit in FY2020/21 compared to 7.124 cents/unit in FY2019/20) due to Festival Walk top-ups in FY20219/20 to enable a certain level of distributable income and DPU to mitigate the loss in rental during the temporary closure of the property.
- Aggregate leverage was within the regulatory limit of 50.0% – at 41.5%, giving the REIT a debt headroom of S$520m before reaching its target aggregate leverage of not more than 45.0%.
- Also, as a result of a lower effective interest rate (from 2.43% per annum in FY2019/20 to 1.99% per annum in FY2020/21), its interest coverage ratio improved from 3.5x in FY2019/20 to 3.7x in FY2020/21. The management aims to maintain its interest coverage ratio of at least 2.5x.
Performance of Individual Properties under its Portfolio:
- Festival Walk (Hong Kong) – As a result of active leasing strategies to recruit and retain tenants, an occupancy rate of 99.9% was achieved for its retail mall. However, this led to a rental reversion of -21% for retail leases that expired in FY2020/21. On the other hand, its office leases in Festival Walk were 100.0% occupied.
- Gateway Plaza (China) – The REIT’s focus on stabilising occupancy levels to minimise downtime and occupancy rate saw its occupancy rate improved to 92.9% (from 91.5% in FY2019/20.) However, as a result of a soft market demand and significant supply influx, its rental reversion was at -7% for leases that expired in FY2020/21.
- Sandhill Plaza (China) – Occupancy rate remained high at 97.9%, with rental reversion at +5% due to tenants (who were in the Technology, Media, and Telecommunications industries) being less affected by the pandemic.
- Japan Properties – Occupancy rate at 97.8%, with rental reversion at a positive +2% for leases that expired in FY2020/21, as these office properties were located in fringe areas, and suburban office hubs where rentals were more affordable – which attracted companies looking to cut costs.
- The Pinnacle Gangnam (South Korea) – Occupancy improved from 89.6% as at 31 July 2020 (as reported in its acquisition announcement) to 96.5% as at 31 March 2021, due to elevated demand for office spaces for the Information Technology, gaming, biotech, and pharmaceutical companies.
- Festival Walk – Average renewal or re-let rates for FY2021/22 ahead is expected to be lower compared to FY2020/21; Manager will remain focused on maintaining a high occupancy rate.
- Gateway Plaza & Japan Properties – Focus in the year ahead will be on maintaining occupancy levels, as well as retaining tenants.
- Sandhill Plaza – Performance in FY2021/22 ahead is expected to remain resilient.
- The Pinnacle Gangnam – Its full-year contribution in FY2021/22 ahead is expected to improve the REIT’s income stream.
Details of Mapletree North Asia Commercial Trust’s Upcoming AGM
Due to the current safe distancing measures in place, Mapletree North Asia Commercial Trust will be holding its upcoming 7th AGM on Thursday, 15 July 2021, at 2.30pm, virtually.
If you are a unitholder of the REIT and would like to attend its upcoming AGM, you can sign up for it here, along with submitting any questions you may have for the REIT’s management (but do remember to do so before Monday, 12 July 2021, at 2.30pm.)
I have already signed up to attend the meeting as a unitholder of the REIT, and will be providing a summary of the meeting in due course. Along with my registration, I have also submitted the following question to the REIT’s management:
“Are there any plans for further acquisition in the near-term (to further lower down the REIT’s concentration to Festival Walk – which, at FY2020/21, still contributes a lion’s share towards the REIT’s gross revenue at 46.7%.) Also, are there any properties which the REIT has a right of first refusal from its Sponsor?”
On the whole, it seems that the outlook for the REIT in the financial year ahead remains weak – the only catalyst at the moment which will increase its top- and bottom-line results will be the full-year income contribution by The Pinnacle Gangnam in South Korea.
As the Festival Walk retail mall still contributes a bulk of the REIT’s overall gross revenue (at 46.7% in FY2020/21), the return to normalcy in Hong Kong from the pandemic, along with the return of visitors to the mall and tenant sales back to not just before the level attained before the pandemic, but before the anti-government protests begin, will definitely be a huge catalyst to the REIT’s overall financial performance. That said, I personally do not see this happening in the year ahead.
Another thing in my personal opinion that could lead to an improvement in the REIT’s results will be news of more yield-accretive acquisitions – and I have posted a question for the REIT’s management related to it (you can read about it in the previous section on details of the REIT’s upcoming AGM.)
With that, I have come to the end of my summary of Mapletree North Asia Commercial Trust’s latest annual report for FY2020/21. As always, I hope you’ve found the contents above useful.
Disclaimer: At the time of writing, I am a unitholder of Mapletree North Asia Commercial Trust.
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