Analysts from CGS-CIMB Research and DBS Group Research are upbeat on Mapletree North Asia Commercial Trust (MNACT) after the REIT posted distribution per unit (DPU) of 6.175 cents for the FY2020/2021 ended March, 13.3% lower than DPU of 7.124 cents from the year before.
CGS-CIMB analysts Lock Mun Yee and Eing Kar Mei have reiterated their “add” call with the same target price of $1.15 as MNACT’s performance for the 2HFY2020/2021 and FY2020/2021 beat their estimates at 54.7% and 102.3% of their FY2020/2021 forecasts.
The positive recommendation also comes as the analysts expect a potential FY2022 dividend yield of 6.5%.
That said, Lock and Eing have decreased their DPU forecasts for the FY2022 and FY2023 by 2.62% and 2.22% to “reflect a change in rental reversion assumptions” for Festival Walk in Hong Kong.
MNACT, in its results announcement, indicated that it expects negative rental reversion for the mall to persist into the FY2022.
SEE: Mapletree North Asia Commercial Trust reports higher gross revenue, NPI for 3Q20/21
“As such, we lower our rental reversion projection to -15% (from -5%) and assume 0.5 months of tenant rental relief (previously 0 months) for FY2022F. MNACT has an estimated 14.6%/11% of leases at Festival Walk to be renewed in FY2022/FY2023,” write the analysts.
Looking ahead, the REIT has a total of 7.6% and 18.1% of its portfolio leases to be renewed from its properties in China, Japan and South Korea for the FY2022 and FY2023 respectively.
“We anticipate demand for decentralised office spaces at Sandhill Plaza and take-up from high-growth industries, such as IT, biomed and pharmaceuticals, to continue to bolster the performance of its office properties,” add Lock and Eing.
The research team at DBS have also kept “buy” on MNACT with a maintained target price of $1.20, as MNACT’s FY2020/2021 gross revenue, net property income (NPI) and DPU stood in line with the brokerage’s expectations.
As at end-March, MNACT’s overall portfolio occupancy level stood at 97%, 0.3 percentage points higher q-o-q, which is a testament to the REIT’s strategy in maintaining occupancies amid the “current delicate operating environment”.
Rental reversions, however, remained weak for the FY2020/2021.
On Festival Walk, the team sees a “cautious recovery” in the midst of a rise in Covid-19 cases, but also noted that the improvement was possibly due to a low base in the year before.
“Looking ahead, we believe the manager would continue to provide some form of assistance to tenants (albeit selectively) and rental reversions will likely remain under pressure (-10% on our estimates) until there is a meaningful rebound in overall tenant sales,” writes the team.
“At Sandhill, operational metrics were stable (occupancy was stable at 97.9%, rental reversion of +5%) but the Manager cautioned that tenants are keeping an eye on costs and expansion, and rental reversions are likely to moderate,” it adds.
Performance for MNACT’s offices in Japan and Korea, with the office community returning to their workplaces, is “likely to remain steady”.
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Like CGS-CIMB, the DBS research team has also lowered its estimates by 2% for the FY2022 as it accounts for a “higher number of shares due to strong response for its dividend reinvestment programme”.
“Despite a y-o-y decline in FY2020/2021 DPU, there are bright spots for MNACT. We expect overall portfolio cashflows to improve sequentially, as Hong Kong emerges out of the Covid-19 situation on the back of the rollout of vaccination programs,” writes the team.
“While China’s office portfolio may see weakness in the near term, this is offset by robust and resilient cashflows projected for its Japan and Korean properties.”
As at 1.41pm, units in MNACT are trading 1 cent higher or 0.9% up at $1.11.
