SINGAPORE (Nov 14): OCBC Investment Research is maintaining its “buy” call on Mapletree North Asia Commercial Trust (MNACT) despite “extensive damage” to its anchor asset Festival Walk mall in Hong Kong.
Protestors overran the mall located in the Kowloon Tong area on Nov 12. There were no reported injuries. However, the Singapore-based REIT’s manager says the rioters smashed the glass panels at entrances to the property and balustrades on various levels of the mall. They also set fire to a Christmas tree located in the atrium and an office lobby.
See: MNACT falls 4.9% as Hong Kong protestors torch key asset Festival Walk
Despite a significant fall in the REIT’s stock price after the incident, OCBC Research Team analysts remain sanguine on the REIT at large, citing sufficient insurance coverage to mitigate the damages caused.
In particular, they have identified two types of coverages the mall has under its belt – a policy on physical damage with an adequate sum covered, as well as business interruption insurance which covers the loss of rental income.
“MNACT has initiated the process for claims and a site inspection has already been carried out by the insurers,” says the team in a report on Thursday.
“However, given that there would likely be a backlog of claims from other affected parties amid city-wide disruptions, we believe it would take time before any reimbursement is done,” it adds.
In the near term, the analysts also note that MNACT appears confident that the incident has limited impact on its FY20 financials. This is despite a lack of visibility on exactly how long the mall – which closed on Tuesday amid city wide disruptions – will remain closed for.
“Management also highlighted that there are typically no pre-termination clauses for its tenancy agreements, but it will continue to support its tenants on a case-by-case basis,” says OCBC. “Notwithstanding this, MNACT believes that it will not breach any loan covenants related to its FY20 P&L.”
OCBC also believes that given the ongoing situation, MNACT is likely to step up its efforts to identify inorganic growth opportunities to diversify its income streams. The brokerage opines that potential acquisitions unlikely to pose a problem for the REIT, as it currently has an approximate debt headroom of some $662 million before reaching its comfortable gearing ratio of 42%.
Despite MNACT’s current attractive valuations, the brokerage acknowledges that sentiment on the stock would likely remain weak, with share price volatility threatening to persist in the near-term.
“For investors who are open to taking a longer-term view and willing to accept potential near-term volatility, gradual accumulation would be the prudent approach, in our view,” says OCBC.
“We expect MNACT’s portfolio to remain relatively more resilient than the market, although it would not be immune to the situation and economic slowdown in Hong Kong,” it adds.
As at 3.43pm, units in Mapletree North Asia Commercial Trust are trading 1 cent lower, or 0.86% down at $1.15.
