• Mapletree North Asia Commercial Trust's 1QFY22 gross revenue and NPI broadly in line at 25.8%/25.3% of our FY22 forecast.
• Stable Japan and Seoul performance dragged by weaker FW and GW.
• Reiterate ADD with a lower DDM-based target price of S$1.12.

MNACT's 1QFY22F Business Update Highlights

• In its 1QFY22 (Apr 2021 to Jun 2021) business update, Mapletree North Asia Commercial Trust (SGX:RW0U) reported gross revenue and NPI of S$103m/S$78.3m, +10%/+14.% y-o-y. The improvement was broadly in line with our expectations and reflects the impact of lower rental relief of S$4m (vs. S$17.9m in 1QFY3/21) and higher occupancy at IXINAL Monzen-nakacho Building in Japan. This was partly offset by lower rents at Festival Walk (FW) and Gateway Plaza (GW).
• Portfolio occupancy ticked up slightly q-o-q to 97.4%.
• Mapletree North Asia Commercial Trust’s leverage ratio stands at 41.8% at end-1Q with interest cover of 4x. With an optimal target gearing of up to 45%, Mapletree North Asia Commercial Trust has ample debt headroom to tap into inorganic growth opportunities.

Weak Rental Reversions at Festival Walk (FW) on Cautious Outlook and Repair Works

• Gross revenue at Festival Walk (FW) grew by 18.4% y-o-y to S$51.5m, boosted by lower rent reliefs. Retail sales and shopper traffic at FW expanded 17.8%/29.8% in 1Q as HK SAR retail sales recovered due to the easing of restrictive measures. While occupancy remained fairly stable at 99.8%, leasing repair works and cautious retail environment. Mapletree North Asia Commercial Trust also plans to continue rejigging its tenant mix to increase the proportion of F&B offerings to boost shopper footfall and tenant sales in the mall.

Stable Japan and Seoul Performance But Weak Performance at GW

• Softer demand compounded by ample tenant to retain its expansion in the property.
• In addition to small maiden contributions from the newly-acquired HP Japan building, the Japan and Seoul office portfolio maintained a high occupancy of 98.2%/95.7% while reversions were fairly stable.

Reiterate ADD Rating

• We lower our Mapletree North Asia Commercial Trust's FY22-24F DPU estimates by 3.8%-4.9% to factor in weaker rent reversion assumptions at GW. Accordingly, our DDM-based target price for Mapletree North Asia Commercial Trust is lowered to S$1.12.
• Mapletree North Asia Commercial Trust is trading at an inexpensive 6.6% FY3/22F DPU yield and we believe much of the weak retail outlook at FW has been factored into the current share price.
• Potential re-rating catalyst: faster-than-expected recovery in Festival Walk (FW).
• Downside risks: slower-than-expected recovery at FW and Gateway Plaza (GW).

Source: CGS-CIMB Research - 27 Jul 2021