Is Mapletree North Asia Commercial Trust Still a Great Buy After The 27% Rally This Year?

Listed in May 2013, Mapletree North Asia Commercial Trust (SGX:RW0U) (MNACT), formerly known as Mapletree Greater China Commercial Trust, was established to invest in income-producing real estate in key cities situated across China and Japan. It is worth S$ 4.60 billion in market capitalisation as of 5 July 2019. 

In this article, I’ll cover the details of its individual properties, its latest financial results, and valuation figures. Hence, here are 11 things to know about MNACT before you invest. 

Individual Properties

• Festival Walk
  It comprises of a four-storey office tower, a seven-storey retail mall and three underground car park levels situated at Kowloon Tong, an upscale residential area in Hong Kong. In 2019, it is valued at S$ 4.97 billion and thus, is the trophy asset of Mapletree North Asia Commercial Trust. It is 100% occupied by 180+ tenants such as Apple, H&M, Marks & Spencer and HSBC and Premier Centre. It has increased revenue from S$ 200.5 million in 2014 to S$ 254.0 million in 2019. It is attributable to positive rental reversions achieved over the past five years.
  
  
  

Source: MNACT’s Annual Reports

• Gateway Plaza
  It consists of two 25-storey office towers that are connected by a three- storey podium area located at the Lufthansa commercial hub in Beijing, China. In 2019, it is valued at S$ 1.39 billion, thus, is the second biggest property in Mapletree North Asia Commercial Trust’s portfolio. It has achieved 99.0% occupancy rate in 2019 and is occupied by 96 tenants which include BWM, BASF, Doosan, Bank of China, and Nanyang Commercial Bank. Revenues had increased from S$ 67.1 million in 2014 to S$ 87.2 million in 2018 due to achieving positive rental reversions for the last 5 years.
  
  
  

Source: MNACT’s Annual Reports

• Sandhill Plaza
  Acquired for S$ 407 million in June 2015, Sandhill Plaza consists of one 20-storey tower and seven blocks of three-storey buildings in Shanghai. In 2019, it is valued at S$ 475.0 million and is the third largest property owned by MNACT. It is 99.3% occupied with 59 tenants such as Analog Devices Inc, Axalta, Borouge, Disney, and DowDuPont. It has generated S$ 24-25 million in revenues per annum from 2017 to 2019 and hence, is a stable income contributor to MNACT.
  
  
  

Source: MNACT’s Annual Reports

• Japanese Portfolio
  MNACT has acquired six freehold office buildings in Japan for S$ 771.0 million in May 2018. They include:
  
  

No.	Property	Acquisition Price(S$ Million)	2019Valuation (S$ Million)
1	IXINAL Monzen-nakacho Building (MON)	105	106
2	HIgashi-nihonbashi 1-chome Building (HNB)	24	26
3	TS Ikebukuro Building (TSI)	64	64
4	ABAS Shin-Yokohama Building (ASY)	33	33
5	SII Makuhari Building (SMB)	321	325
6	Fujitsu Makuhari Building (FJM)	224	228

The key income contributors of the six properties are the SMB and FJM for they have accounted for 70.7% and 72.7% of MNACT’s valuation for its properties in Japan and revenues generated in 2019 respectively. In 2019, the six properties had contributed S$ 42.5 million in revenues to MNACT. 

Group Financials 

• Portfolio Valuation
  Overall, MNACT has expanded its portfolio valuation by CAGR of 10.0%, up from S$ 4.72 billion in 2014 to S$ 7.61 billion in 2019. It is attributed to its acquisition of Sandhill Plaza in 2015 and six properties in Japan in 2018 and capital appreciation of both Festival Walk and Gateway Plaza.
  
  
  

Source: MNACT’s Annual Reports

• Financial Results
  MNACT has recorded sustainable growth in revenues and distributable income over the last 5 years. Revenue had grown from S$ 252.5 million in 2014 to S$ 408.7 million in 2019. Distributable Income had increased from S$ 159.2 million in 2014 to S$ 240.7 million in 2019. Its increase is in line with MNACT’s continuous efforts in expanding its portfolio in the 5-year period and positive rental reversions from all major properties in China. As such, MNACT has increased its distribution per unit (DPU), up from 5.94 cents in 2014 to 7.69 cents in 2019.
  
  
  

Source: MNACT’s Annual Reports

• Balance Sheet Strength
  As of 31 March 2019, Mapletree North Asia Commercial Trust has total gross debt of S$ 2.88 billion and total assets of S$ 7.82 billion. Thus, its gearing ratio is 36.6%. As of now, it incurs 2.47% in effective interest rate per annum and has 86% of total borrowings based on fixed interest cost. It has a weighted average term of debt of 3.70 years where it has no more than 26% of debt due in one single year. MNACT was granted ‘Baa1’ credit rating with stable outlook by Moody’s.
  
  
  

Source: MNACT’s Financial Presentation for Q4 2019 

Income Visibility

• Lease Profile
  As of 31 March 2019, Mapletree North Asia Commercial Trust has recorded a 99.6% in occupancy rates for its portfolio. It derives income from a pool of 360+ tenants where it generates 35.0% of its gross rental income (GRI) from its top 10 tenants which include:
  
  

No.	Top 10 Tenants	Property	GRI (%)
1	BMW	Gateway Plaza	8.3%
2	Seiko Instrument Inc	SMB	5.6%
3	Arup	Festival Walk	3.7%
4	TaSTe	Festival Walk	3.6%
5	Fujitsu	FJM	3.6%
6	CFLD	Gateway Plaza	3.1%
7	Festival Grand	Festival Walk	2.0%
8	Apple	Festival Walk	1.8%
9	I.T.	Festival Walk	1.7%
10	Japan Information Processing Service	MON	1.6%

It has weighted average lease expiry (WALE) of 2.8 years, where 54% of its leases would start to expire progressively from financial year 2022 & beyond. Thus, they provide income visibility to unitholders of MNACT.

Source: MNACT’s Financial Presentation for Q4 2019

Valuation 

• P/B Ratio
  As of 5 July 2019, Mapletree North Asia Commercial Trust is trading at S$ 1.45 per unit. In 2019, it has a net asset value (NAV) of S$ 1.445 per unit. Thus, its current P/B Ratio is 1.003, the highest since its IPO listing in 2013.
  
  
  

• Distribution Yield
  In 2019, its DPU is 7.69 cents. Thus, its gross distribution yield is 5.30% per annum, the lowest since its IPO listing in 2013.
  
  
  

VIA’s Verdict 

In brief, Mapletree North Asia Commercial Trust has delivered consistent growth in revenue, NPI, DPU and NAV for the past 5 years. This resulted in a consistent rise in unit price, hence, lifting its market capitalisation from S$ 2.19 billion in 2014 to S$ 4.60 billion presently, which is a CAGR of aprroximately 16.03% in the 5-year period. 

Source: Google Finance

Most of the unit price increase occur recently in 1H 2019. This caused MNACT’s valuation figures to be at the highest in P/B Ratio and the lowest in distribution yields. So, is this a good time to invest in MNACT at S$ 1.45? 

You decide. 

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