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DBS remains bullish on MNACT as Festival Walk gets dragged into Hong Kong unrest

Uma Devi
Uma Devi • 3 min read
DBS remains bullish on MNACT as Festival Walk gets dragged into Hong Kong unrest
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SINGAPORE (Nov 12): Units in Mapletree North Asia Commercial Trust (MNACT) have slipped close to 4%, after anchor asset Festival Walk shopping mall was forced to close early on three consecutive days amid escalating tensions in Hong Kong.

On Nov 10, the street protests in Hong Kong had spilled into MNACT’s Festival Walk, after altercations broke out which resulted in some injuries.

Various media outlets also reported that one of the island-wide skirmishes between Hong Kong protestors and police had occurred at Festival Walk, resulting in several shops being damaged and vandalised.

In a filing to SGX before market open on Nov 11, the manager of MNACT confirmed that “some injuries were suffered and two ambulances were summoned to send the injured parties to the hospital for treatment”.

The manager said there was “minimal damage” to the property and that the mall will resume operations later that same day on Nov 11.

“The manager's team were on site to immediately direct shoppers, tenants and their employees out of the premises. Festival Walk was closed at 6:45pm (on Nov 10),” it added.

However, posts on Festival Walk’s Facebook page reveal that the mall was also forced to close early on the next two consecutive days – at 7pm on Nov 11 and at 2pm on Nov 12 – “for the safety of our customers, tenants and staff”.

Despite the disruptions, DBS Group Research believes all is not lost for MNACT, as the REIT’s strong management team is likely to navigate Festival Walk’s operations past what appears to be a volatile and emotionally sensitive period.

“We note that when the Hong Kong protests began in June 2019, Festival Walk had been relatively unscathed from the various skirmishes across the city which were largely confined to the streets,” says lead analyst Derek Tan in a Nov 11 report.

He adds that Festival Walk has been nothing short of an “anchor asset” for MNACT, and has been the source of strong growth in cashflows for the REIT.

While Tan notes that Festival Walk’s operational metrics have displayed more resilience compared to the overall Hong Kong retail sales statistics, he cautions that regular shoppers may stay away from shopping malls in the near term.

“With the peak shopping season (Christmas and Chinese New Year) coming up, the chance of further near-term weakness is likely,” Tan says.

However, he notes that the disruption of Festival Walk’s operations could well be an incentive for MNACT to diversify its earnings base. In the latest 2Q20, the mall accounted for some 62% of the REIT’s total net property income.

“Similar to other REITs like SPH REIT or Mapletree Commercial Trust where performance ‘rides on’ a key asset in their respective portfolios, we believe it may be the right move for MNACT to gain new growth thrusts by diversifying its earnings base to other income sources or geographies,” says Tan.

“While we expect near term volatility in the stock price, we believe that it will be an opportune time to look to buy into MNACT at attractive valuations,” he adds.

Units in MNACT closed 1 cent lower, or down 0.8%, at $1.22 on Tuesday. This translates into a price-to-earnings (P/E) ratio of 20.0 times and a dividend yield of 5.96% for FY20 according to DBS valuations.

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