Mapletree North Asia Commercial Trust (MNACT) provided an update on Festival Walk (FW) mall. The mall has been closed since 13 Nov, and there are major recovery and repair works to be carried out. Management is working towards having the mall reopen in 1QCY20, although this is also subjected to approvals from the relevant authorities.

For the office tower, it was also closed on 13 Nov but reopened on 26 Nov.

As highlighted previously, FW has insurance coverage which includes property damage and loss of revenue due to business interruptions. Rental from FW’s retail tenants will not be collected over the duration when the mall is closed.

While assessment of the revenue loss amount and property damage is currently underway, there is no visibility yet on when MNACT will receive the insurance claims reimbursement. Given this income void, MNACT will be implementing a top-up to the distributable income for 2HFY20 and 1QFY21. This distribution top-up amounts to ~40% of FW’s retail revenue. Once the insurance claims proceeds are received, it will be used to repay the borrowings undertaken to fund the top-up.

Separately, MNACT also announced the proposed acquisition of a 98.47% stake in two freehold, multi-tenanted office properties in Greater Tokyo, Japan, from its sponsor. The agreed property value is JPY38.1b (~S$485.1m), and translates into an NPI yield of 4.5%. Occupancy rate is 85.9% and hence we see potential upside to the income yield if MNACT manages to ramp up its occupancy.

Given Japan’s negative 10-year government bond yield, this acquisition represents a healthy yield spread of 470 bps as compared to MNACT’s existing portfolio outside of Japan (~270 bps for FW and ~160 bps for its China properties). We will provide more details after the analyst conference call.

For now we have a BUY rating and S$1.41 fair value estimate on MNACT.

Source: OCBC Research - 5 Dec 2019