• Mapletree North Asia Commercial Trust’s 3Q/9MFY9/19 DPU of 1.927/5.734 Scts was broadly in line with our expectations.
• We expect Festival Walk (FW) income to remain stable and Gateway Plaza’s (GW) growth outlook to stay moderate.
• We maintain our ADD call with a slightly higher target price of S$1.32.

3QFY3/19 Results Highlights

• MAPLETREE NORTH ASIA COMM TR (SGX:RW0U) reported a 19.4%/15.9% jump in 3QFY3/19 revenue and distribution income to S$105.6m/S$61m thanks to an uptick in portfolio occupancy to 99.7% and organic rental growth from its initial portfolio and full quarter’s contribution from the Japan assets. DPU of 1.927 Scts is up 3.2% y-o-y, making up 26% of our FY19 forecast.
• For 9MFY3/19, Mapletree North Asia Commercial Trust’s DPU of 5.734 Scts is 2.7% higher y-o-y and accounted for 78% of our FY19 forecast.

Positive Rental Reversion, Stable Outlook

• Festival Walk (FW) in Hong Kong remains fully occupied and saw a positive reversion of 32% for financial YTD for its retail space. For 3Q, excluding anchor tenant renewals, the improvement was 12-13%.This was despite a 1% y-o-y drop in tenant sales and 3.4% y-o-y dip in shopper footfall in 3Q. Trade sectors that did well include F&B, luxury items and personal cosmetics.
• With the moderated retail sales growth outlook, we anticipate Festival Walk income to remain stable given that it caters largely to the local residential catchment.

Moderated Growth Outlook for Gateway Plaza

• Gateway Plaza (GW) in Beijing also saw higher take up of 99.3% at end-3Q with positive rental reversion of 8% for financial YTD. With the slower economic growth outlook and average passing rent that is close to the top end of its sub-market range, we anticipate rental reversions to be relatively flat for the 4.4% of portfolio gross rental income expiring at Gateway Plaza in FY3/20.
• At Sandhill Plaza (SP), rental increased 14% for 9MFY19 and we expect the property to enjoy positive rental uplift for its upcoming lease expiries.

Healthy Balance Sheet

• Gearing was unchanged at 39% with average funding cost increased slightly to 2.49% q-o-q and little refinancing needs for FY3/20. Mapletree North Asia Commercial Trust has well placed inorganic growth opportunities in Japan and China, including tier 1 and tier 1.5 cities.

Maintain ADD

• We trim our FY19-21 DPU estimates by 0.3-1.2% post results on slower rent growth outlook at Gateway Plaza. However, we lift our DDM-based Target Price slightly to S$1.32 as we roll forward our assumptions to FY20.
• We keep our ADD rating as we like Festival Walk’s stable performance, which makes up 62% of 9MFY3/19 revenue.
• Key risks include a protracted slowdown of China’s economy which would dampen appetite for office space.
• A potential re-rating catalyst is new income-accretive acquisitions.

Source: CGS-CIMB Research - 28 Jan 2019