SINGAPORE (May 4): DBS Group Research and CGS-CIMB are keeping their “buy” calls on Mapletree North Asia Commercial Trust (MNACT) despite its 19.9% y-o-y drop in distribution per unit (DPU) to 1.566 cents for its most recent 4QFY19/20 ended March 31 2020.

The Trust’s DPU was affected by the social unrests and subsequent Covid-19 outbreak in Hong Kong, that led to the closure of the REIT’s anchor asset, Festival Walk. Rental reliefs of some $17.8 million further lowered the DPU.

DBS has maintained its target price of $1.05, while CGS-CIMB has reduced its target price to $1.26 from its previous $1.30.

On April 29, MNACT reported distributable income of $50.8 million for 4QFY19/20, a 18.2% y-o-y drop from the $62.1 million. Gross revenue in the same period was down 26.2% y-o-y to $76.8 million.

During the quarter, MNACT booked negative revaluation of $17.9 million. In contrast, in the year-earlier quarter, a revaluation gain of $465.1 million was booked. 

As a result, MNACT’s earnings attributable to unitholders plunged from 99.9% y-o-y from $492.8 million to $459,000.

As at March 31 2020, MNACT’s net asset value was $1.412 per unit, slightly down from $1.445 as at March 31 2019.

Despite the hit suffered by Festival Walk, as well as lower average occupancy at Gateway Plaza, maiden contributions from newly-acquired properties in Japan, MBP and Omori helped offset the earnings.

Despite the severe impact of the Covid-19 outbreak and the social unrest on Festival Walk, DBS’s analysts Derek Tan and Rachel Tan believe that MNACT’s prospects may be “shaken, not stirred”, as they see the negative results “are priced in at this level as Hong Kong retail navigates past the crisis from a position of strength,” according to their May 4 report.

They see MNACT’s recent acquisition of office properties in Japan as help to diversify its earnings, instead of being overly reliant on Festival Walk. “With a wider earnings base backed by a long-weighted lease expiry, we anticipate MNACT to deliver even more stable earnings to unitholders going forward,” say the DBS analysts.

In DBS’s FY21F, Festival Walk is projected to contribute close to 55% of net property income (NPI) as opposed to its previous estimate of 62%. 

CGS-CIMB’s analysts Lock Mun Yee and Eing Kar Mei are lowering their estimates for MNACT’s DPU for FY21-FY22F by 1.3-4.8% “to factor in more rental reliefs granted to Festival Walk tenants, as well as expectations of lower occupancy on the back of slower leasing activities”.

Both DBS and CGS-CIMB note that MNACT has maintained a healthy gearing at 39.3%, with an average term to maturity of 3.35 years.

As at 4.26pm, shares at Mapletree North Asia Commercial Trust are trading at 4.5 cents down, or 4.8% lower, at 90 cents.