8 things I learned from the 2020 Mapletree North Asia Commercial Trust EGM

8 things I learned from the 2020 Mapletree North Asia Commercial Trust EGM

Since Mapletree North Asia Commercial Trust’s (MNACT) IPO in March 2013, Festival Walk has been MNACT’s star performer with double-digit rental reversions year after year. However, the upscale mall situated in Kowloon Tong, Hong Kong, was heavily damaged by anti-government protestors in November 2019. Festival walk contributed about 62% of MNACT’s net property income in FY2019.

As a concerned unitholder of MNACT, I attended the 2020 MNACT EGM to find out what happened at Festival Walk and what the management is doing to lower the concentration risk vis-à-vis Festival Walk.

Here are eight things I learned from the 2020 Mapletree North Asia Commercial Trust EGM:

1. To accelerate the diversification of MNACT’s income streams, unitholders have agreed to the acquisition of two office towers in Greater Tokyo area. To demonstrate their support for portfolio diversification, the managers have voluntarily waived their acquisition fee for the purchase of the mBay Point Makuhari Building and Omori Prime Building at JP¥38,110.0 million or S$485.1 million. Both freehold properties were acquired at a net property income yield of 4.5%.

2. The first property acquired, mBay Point Makuhari Building, located in Chiba City, is a 26-story office building with a net lettable area (NLA) of 84,785 square metres. The property has a weighted average lease expiry (WALE) of 3.6 years and an occupancy rate of 84.8%.

Source: Mapletree North Asia Commercial Trust EGM slides

3. The second property acquired, Omori Prime Building, located in Tokyo’s Shinagawa, is a 13-story office building with an NLA of 10,442 square metres. The property has a WALE of 1.7 years and an occupancy rate of 100.0%.

Source: Mapletree North Asia Commercial Trust EGM slides

4. After the acquisition, Japan’s share of MNACT’s net property income (NPI) will increase from 11.6% to 17.0%. This will bring Festival Walk’s NPI share down from 61.8% to 58.1%. To dilute Festival Walk’s NPI contribution to 20% of MNACT’s NPI, MNACT will have to acquire properties that generates another $524.7 million in NPI. It’s going to take them a long time to accomplish it, so don’t expect Festival Walk’s share of MNACT’s NPI to decrease drastically anytime soon.

Source: Mapletree North Asia Commercial Trust EGM slides

5. MNACT expects the acquisitions to be distribution per unit accretive, increasing DPU by 1.8% to 7.829 cents from 7.690 cents. This includes the issuance of 124.4 million transaction units to the sponsor’s nominee at $1.15 per unit to fund 30% of the acquisition cost; the remaining 70% will be funded by debt and internal cash resources.

6. A unitholder wanted to know what happened at Festival Walk and the extent of damage done to the mall. Chairman Paul Ma narrated the details of the event. On the afternoon of 10 November 2019, protestors entered the mall to mourn the death of a fellow protestor who fell from a carpark. A commotion broke out when a protestor spotted what they thought was an uncover police officer. Then suddenly, the riot police intervened. The protestors assumed that the mall had called the riot police on them, so they decided to take it out on Festival Walk. The day after, the protestors came back to set the Christmas tree on fire. On 12 November, the protestors came back once again to break all the glass panels around the mall. The mall operators called the police but they appeared only after three hours because they were busy dealing with the protestors from six universities. When the police arrived, the protestors left., And when the police left, the protestors came back. That’s why the damage was quite extensive.

7. A unitholder asked if there was a possibility that the mall would be attacked again; and if there were any measures put in place to prevent this from happening again. The chairman said that what has happened in Hong Kong was quite unprecedented. He said MNACT has taken a number of measures to strengthen the mall’s security, but the mall cannot be turned into a fortress. If 100 protestors try hard enough, they cannot be stopped from entering the mall.

8. A unitholder said that the protests in Hong Kong may tarnish Hong Kong’s image as a tourist destination. He wants to know the management’s thoughts on this issue given that Festival Walk comprises 68.1% of MNACT’s NPI. The chairman agreed that the outlook and perception of Hong Kong have changed. There’s vast political polarization within the community. For example, he read about a couple who were planning to get married decided to break up because of differing political views. He added that there there’s no running away from the fact that MNACT has this huge mall in Hong Kong, and Festival Walk has served MNACT well for many years. The saving grace is that the mall is not dependent on the tourist trade. It is a community asset — there are no other malls around Festival Walk. The chairman said MNACT is engaging with the local community and the newly elected counsellor to help the mall regain its footing. With the re-opening of Festival Walk, MNACT expects to selectively provide rental relief to tenants whose business had been badly affected by this situation. The rental relief will gradually be reduced over time.

Liked our analysis of this EGM? Click here to view a complete list of EGMs and AGMs we’ve attended »

Kenny Quek is a research analyst at The Fifth Person. He graduated from Drexel University in Philadelphia, PA with a major in finance and previously managed a fund in the U.S. before returning to Singapore.

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