Reaching an agreement on insurance settlement
■ Total insurance settlement amount for Festival Walk agreed at HK$334.3m.
■ Excess S$3.5m insurance settlement amount from business interruption to be paid to unitholders.
■ Reiterate Add rating with a slightly higher DDM-based TP of S$1.13.
Reaching insurance settlement agreement for Festival Walk
MAGIC announced that it has entered into a settlement agreement with the insurers on the claims for property damage and revenue loss due to business interruption at Festival Walk. The total settlement amount agreed in the sum of HK$334.3m (S$58.3m) comprises HK$84.3m (S$14.7m) for property damage and HK$250m (S$43.6m) for revenue loss due to business interruption. To recap, Festival Walk suffered extensive damage from incidents in Hong Kong SAR that started on 12 Nov 2019. As a result, the retail mall area at Festival Walk was closed from 13 Nov 2019 to 15 Jan 2020 while the office tower was closed from 13 Nov to 25 Nov 2019. During these periods, rental was not collected from the retail and office tenants, respectively. To date, an interim payment of HK$263m has been received from the insurers.
Excess insurance settlement amount to be paid to unitholders
MAGIC indicated that the insurance settlement amount for property damage is considered capital in nature and is not distributable. For revenue loss due to business interruption, the insurance settlement amount (net of tax) is about S$36.4m. After taking into account distribution top-ups of S$32.9m paid to unitholders in 3Q and 4QFY3/20, MAGIC will distribute the excess amount of S$3.5m to unitholders as part of its 2HFY3/22F distributions.
Reiterate Add rating
We tweak our FY22F DPU estimate up by 1.49% to reflect the payment of the insurance claims to unitholders and fine-tune our FY23-24F DPU estimates marginally. Accordingly, our DDM-based TP is raised slightly to S$1.13. MAGIC is trading at an inexpensive c.6.6% FY3/22F DPU yield and we believe much of the weak retail outlook at FW has been factored into the current share price. Potential re-rating catalyst: faster-than-expected recovery in Festival Walk (FW). Downside risks: slower-than-expected recovery at FW and Gateway Plaza (GW).