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Mapletree North Asia Commercial Trust (MNACT) is a REIT that owns nine commercial properties in China, Hong Kong, and Japan. As of 31 March 2019, MNACT’s portfolio of properties was valued S$7.6 billion.
The ongoing protests in Hong Kong have made headline news around the world recently and I was interested to learn more about the REIT and how the protests would affect its business in Hong Kong.
Here are 10 things I learned from the 2019 Mapletree North Asia Commercial Trust AGM:
1. Gross revenue grew 15.1% year-on-year to S$408.7 million and net property income grew 14.6% YoY to S$240.7 million. This was contributed by the acquisition of a portfolio of Japanese properties in May 2018 and higher rental income from Festival Walk, Gateway Plaza, and Sandhill Plaza.
2. Distributable income rose 14.1% YoY to S$240.7 million while DPU rose 2.8% YoY to 7.69 cents. The lower DPU growth was due to the issuance of 311.6 million units to raise S$330.3 million to partially fund the S$777.5 million acquisition of the Japanese properties.
3. As at 31 March 2019, MNACT’s gearing ratio stood at 36.6%. Average cost of debt is 2.47% and average debt to maturity is 3.7 years. Not more than 26% of debt is due in a single year and 86% of MNACT’s debt are fixed-rate loans.
4. Portfolio occupancy increased to 99.6% in 2019 from 98.5% the year before. This was mainly attributed to the expansion of an existing tenant at Gateway Plaza.
5. As of 31 March 2019, MNACT has a weighted average lease expiry of 2.8 years. Of the 25.4% of leases expiring in FY2019, 6.1% has already been committed for renewal or re-let in FY2020.
6. A unitholder was worried about the how the spate of demonstrations in Hong Kong would affect the performance of Festival Walk. Chairman Paul Ma said that, in the short run, MNACT is protected by its leases. But if the protests were to continue or worsen, it would have an impact on the overall economy of Hong Kong and the business of Festival Walk in the long run. The protests have the potential to turn violent like at New Town Plaza where protestors clashed with police inside the shopping mall. MNACT has drawn up various contingency plans and has been in consultation with various agencies to minimize the impact and any damage to Festival Walk. He added that the management can’t fully predict what will happen next and that there’s a limit to what’s within their control.
7. A unitholder was concerned about the concentration risk of Festival Walk, which contributes 62.0% of the REIT’s net property income. The chairman addressed the question saying that the concentration risk was much higher at IPO and investors went in with their eyes wide open. At the same time, diversification is important to reduce MNACT’s concentration risk, which is why the REIT entered Japan. He went on to remind unitholders that Festival Walk has been a star performer over the years with positive rental reversions like ‘he has never seen before’.
8. A unitholder asked if Festival Walk would be of ‘no value’ after its land lease expires in 28 years. The chairman said that the value of the property will remain, but the question becomes how much you’d have to pay to extend the land lease when it expires, and this doesn’t come without cost. He added the expiring land leases are not a unique situation; it’s also present in Singapore, Indonesia, and China. For example, it’s not possible to continue enjoy living in an HDB without payment for an extension after the lease expires after 99 years.
9. A unitholder was curious to know why MNACT owns only 98.47% of its Japanese properties. The chairman explained that the non-controlling stake of 1.53% — held by Mapletree Investments Japan Kabushiki Kaisha — was in place to comply with Japanese requirements for MNACT to enjoy some tax advantages.
10. A unitholder asked if MNACT had ever considered developing a mall in Japan. The chairman said that it is important to be mindful of a mall’s location and tenant profile as malls are not doing well in many places. He jested that if you were to build a mall in China today, two more would appear right beside you the next day. But the situation in Japan is different as it’s very difficult to get land. MNACT’s sponsor, Mapletree Investments, owns a retail mall in Osaka which MNACT has the right of first refusal to. The management would consider the property if the sponsor ever decides to sell it.
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