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Wednesday, July 29, 2020

Mapletree North Asia Commercial Trust (Previously Mapletree Greater China Commercial Trust) Analysis @ 29 July 2020

Update: 03 Nov 2020
Occupancy should be at 96.4% instead of 99.3% as shown below.

Basic Profile & Key Statistics
Mapletree North Asia Commercial Trust (MNACT) previously known as Mapletree Greater China Commercial Trust (MGCCT), renamed after completion of Japan properties acquisition in May 2018. MNACT invests in both retail and office properties.

Lease Profile
Occupancy is very high at 99.3%. WALE is short at only 2.6 years where the highest lease expiry of 26.9% falls in FY 22/23. 16.4% of its income received in JPY. Weighted average land lease expiry is short at 39.81 years.

Debt Profile
Gearing is slightly high at 39.6%. Cost of debt is low at 2.2% with 76.9% of unsecured debt. Fixed rate debt of 76% is slightly lower than SREITs median level. Interest coverage ratio is low at 3.2 times. WADE is moderate at 3.05 years, where highest debt maturity of 24% falls in the year 2025.

Diversification Profile
MNACT flagship property - Festival Walk in Hong Kong contributes 55% of gross revenue in terms of geographical and property contributions, which indicates it is quite dependent on Festival Walk. Top tenant contribution is low at 7.4% while top 10 tenants contribution of 35.2% is slightly lower than SREITs median. 

Key Financial Metrics 
Property Yield is low at 3.7%. Management fees is very competitive in which shareholders received S$10 for every dollar paid. Distribution on capital is low at 2.9%. Distribution margin is high at 58.8%

Related Party Shareholding 
REIT Manager and directors holding are higher than median level, while sponsor holding is lesser than median level.

DPU is going downtrend after the Hong Kong riot happened in 2019. NAV per unit is going uptrend for past 5 years. Distribution margin maintains throughout the past 5 years.

Fundamental Valuation
Favorable Less Favorable
Diversified Sector WALE
Occupancy Income in SGD/Major Currencies
Cost of Debt Weighted Average Land Lease Expiry
Well Spread Debt Maturity Interest Cover Ratio
Top Tenant Contribution Top Property Contribution
Management Fee Property Yield
Distribution Margin Distribution on Capital
NAV per Unit Uptrend
Hong Kong riot hurt MNACT fundamentals since 3Q 2019, then 1Q 2020 followed by COVID, thus MNACT is hit by a double whammy. In the short term, things won't be rosy. Nonetheless, based on the above, its fundamentals remain strong.

Relative Valuation
i) Average Dividend Yield
Dividend yield of 7.98 % is based on annualized DPU for the past 1 year. Apply annualized DPU of 6.899 cents to average yield of 6.75% will get S$ 1.02. 
ii) Average Price/NAV 
Average value is at 0.85, apply latest NAV of S$1.405 will get S$ 1.19

Author's Opinion
Hong Kong COVID situation is getting worse at this moment. Even if COVID subsides, protests may happen again. However, judging by management's quick response to the previous riot situation, I am confident that MNACT can tide through its hard time. For valuation:
i) Fundamental Intrinsic Value = (Removed)
ii) Relative Valuation - Dividend Yield = S$ 1.02
iii) Relative Valuation - Price/NAV = S$ 1.19
At the current price of S$0.865, it seems that the current price is undervalued.

*Disclaimer: Materials in this blog are based on my research and opinion which I don't guarantee the accuracy, completeness, and reliability. It should not be taken as financial advice or statement of fact. I shall not be held liable for errors, omissions as well as loss or damage as a result of the use of the material in this blog. Please always do your own due diligence before any decision is made.

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