• 3QFY20 DPU fell 13.3% YoY
• Expect sequential improvements ahead
• Occupancy at Gateway Plaza dipped

3QFY20 Results Met Our Expectations

Mapletree North Asia Commercial Trust (MNACT) reported its 3QFY20 results which came in within our expectations. Gross revenue and NPI dipped 36.3% and 40.0% YoY to S$67.3m and S$50.8m, respectively. This was primarily attributed to the closure of Festival Walk (FW) mall from 13 Nov 2019 to 16 Jan 2020, which resulted in no rentals being collected while the mall was closed. There was also weaker contribution from Japan due to the expiry of a single tenancy and from Gateway Plaza (GP) as a result of higher vacancies.

DPU fell by a smaller magnitude of 13.3% YoY to 1.671 S cents as there was a distribution top-up of S$25.8m (~0.809 S cents per unit) in relation to FW’s closure (office component was closed from 13 to 25 Nov 2019). On a 9MFY20 basis, MNACT’s NPI fell 10.0% to S$220.6m, while DPU was down 3.1% to 5.558 S cents and this formed 75.3% of our FY20 forecast.

Some Challenges Seen in China Too

Operationally, MNACT’s portfolio occupancy declined 2.6 ppt QoQ to 96.3%. Although FW’s occupancy remained full, that of GP fell 4.9 ppt to 91.6% due to the soft economic conditions and more intense competition. Average rental reversions were -3% for GP for 9MFY20 (1HFY20: -4%), but remained stable at +12% for FW’s retail component as there were not many leases renewed in 3QFY20 (% of expiring leases in FY20 which were renewed/re-let increased from 85% in 1HFY20 to 90%). FW’s footfall and tenants’ sales slipped 5.1% and 8.7% for 7MFY20 (1HFY20: -3.6% and -6.6%, respectively). Figures for Nov and Dec were not provided given the closure of the mall from 13 Nov.

FY21F Distribution Yield of 6.1%, as at 17 Jan Close

Looking ahead, as FW mall has reopened on 16 Jan and this was earlier than management’s previous expectations, MNACT highlighted that it will no longer be providing any distribution top-ups in 1QFY21 (within our expectations). The distribution top-up for 4QFY20 will still be in place. There is no visibility on when the insurance reimbursements would come in.

As the bulk of the period of FW mall’s closure was in 3QFY20, we believe the worst is likely over for MNACT, although uncertainties remain. We increase our fair value estimate marginally to S$1.37 (previously S$1.36) due to lower estimated units to be issued for management fees given the recent recovery in share price. We opine that FY21 distribution yield of 6.1% (based on S$1.24 closing price) remains relatively attractive.

Source: OCBC Research - 20 Jan 2020