Mapletree North Asia Commercial Trust
Mapletree North Asia Commercial Trust (SGX: RW0U), or MNACT for short, is a real estate investment trust (REIT) that invests in best-in-class commercial properties located in China, Hong Kong SAR and Japan. This article will provide an overview of MNACT and in the next article, we will cover the on-going situation in Hong Kong and its impact on MNACT going forward.
The REIT’s portfolio consists of nine properties – two located in China (Shanghai and Beijing), one in Hong Kong, and six in Japan (Tokyo, Yokohama and Chiba). Note that MNACT used to be called “Mapletree Greater China Commercial Trust” but changed its name in May 2018.
MNACT is managed by Mapletree North Asia Commercial Trust Management Ltd, which in turn is a wholly-owned subsidiary of Mapletree Investments Pte Ltd (MIPL). The ultimate holding company of MIPL is Temasek Holdings.
Mapletree North Asia Commercial Trust Property Portfolio
MNACT’s key asset is its property in Hong Kong, a mall known as Festival Walk. For the half-year ended September 30, 2019 (1H FY 2019/2020), Festival Walk contributed the bulk of gross revenue at 62%, while its China assets, Gateway Plaza (Beijing) and Sandhill Plaza (Shanghai) contributed 20% and 5.9% respectively. In terms of net property income (NPI), Festival Walk was also the key contributor at 61.8% of NPI.
As of 31 March 2019, MNACT’s total portfolio valuation was S$7.61 billion, of which Festival Walk contributed 65.3%. Gateway Plaza contributed 18.2%, Sandhill Plaza 6.2% while the Japan properties made up the remaining 10.3%.
Mapletree North Asia Commercial‘s Track Record
Source: MNACT’s Annual Report 2018/2019 Page 2; Author’s Compilation
MNACT has a strong track record of growth over the last five fiscal years (the REIT has a 31 March year-end). As can be seen from the graph above, gross revenue has jumped from S$281.1 million in FY 2014/2015 to S$408.7 million in FY 2018/2019, while distributable income has also climbed from S$178 million to S$240.7 million over the same period.
Importantly, for investors, the distribution per unit (DPU) for MNACT has also climbed steadily, from 6.56 Singapore cents to 7.69 Singapore cents. This was remarkable for the fact that MNACT did not undertake any acquisitions for the period FY 2014/2015 through to FY 2016/2017. This implies that the growth in revenue and NPI during this period was due to organic growth initiatives.
The REIT made an acquisition in March 2018 of the six Japanese commercial properties for around S$753.4 million, in order to enhance MNACT’s geographical and income diversification. Prior to this acquisition, MNACT only had three properties and the bulk of revenue was concentrated on Festival Walk in Hong Kong.
Mapletree North Asia Commercial‘s Recent Performance
For the current fiscal half-year (FY 2019/2020), MNACT’s gross revenue increased by 5.7% year-on-year to S$210.4 million, while NPI and distributable income increased by 5.8% and 5.3% year-on-year, respectively. DPU continued to climb, albeit less than the increase in distributable income, by 2.1% year-on-year to 3.887 Singapore cents. At MNACT’s last traded share price of S$1.16, this represents an annualised dividend yield of around 6.7%.
Mapletree North Asia Commercial‘s Future Growth Plans
REITs grow through a combination of organic and inorganic growth, and MNACT is no different. For organic growth initiatives, the REIT continues to maintain full occupancy for Festival Walk and achieved positive rental reversion* of 12% for the retail portion, and 6% for the office portion.
New shops were also introduced into the mall to refresh its tenant mix, such as OTO (health and wellness) and Kidswear chain Chickeeduck. Promotional events are also held periodically to attract footfall to the mall and increase shoppers’ spending. Gateway Plaza, though, has seen weaker leasing momentum due to new office supply and has reported negative rental reversion of 4%.
However, asset enhancement initiatives (AEI) works for the refurbishment of toilets and common corridors are ongoing and occupancy rate remains high.
Sandhill Plaza fared better, recording positive rental reversion of 10%, and management is also conducting AEI works and engaging tenants proactively.
In December 2019, MNACT announced its second acquisition since its IPO. It plans to acquire two freehold, multi-tenanted office properties located in Tokyo, Japan for around S$482.5 million. The proposed acquisitions were made at an NPI yield of 4.5% and will further diversify MNACT’s income away from its heavy reliance on Festival Walk. Japan’s contribution to NPI (based on 1H FY 2019/2020) will increase from 11.6% to 17%.
The acquisition will be financed through a combination of the issuance of units to the sponsor’s nominee, debt financing and internal cash resources. As of 30 September 2019, MNACT’s leverage ratio was 37.1%, still well below the maximum threshold of 45% set by the Monetary Authority of Singapore.
*Rental reversion refers to the change in effective rental rates of new leases compared to the previous leases. It accounts for any rent-free periods or step-up rental rates over the lease term (if any).
