All in the price
? Mapletree North Asia Commercial Trust’s (MAGIC) 2H/FY3/22 DPU of
3.393/6.819 Scts were in line, at 49.2%/98.9% of our FY22F forecast.
? Negative reversions at FW narrowing; weaker performance at GW.
? Downgrade from Add to Hold; DDM-based TP unchanged at S$1.13.
2HFY3/22 results highlights
MAGIC reported 2HFY3/22 gross revenue and NPI of S$211.2m/S$160.1m (+4.9%/+5.1%
yoy). The yoy improvement was due to lower rental relief granted to retail tenants at
Festival Walk (FW), contributions from Hewlett-Packard Japan HQ, and a stronger Rmb,
partly offset by lower average rental rates at FW and Gateway Plaza (GW). 2H distributable
income of S$119.7m (+5.6% yoy) translated into a DPU of 3.393 Scts. FY3/22 DPU of
6.819 Scts (+10.4% yoy) was broadly in line, at 98.9% of our FY22F forecast. Portfolio
occupancy remained stable at 97.4% at end-FY22. In terms of balance sheet, MAGIC’s
gearing stood at 41.5% at end-FY22, with interest cover of 4.3x.
Improved FW performance due to lower rent relief
Gross revenue at FW grew 10.4% yoy in FY22 to S$204.4m, while NPI rose 10.8% yoy to
S$153.8m, boosted by lower rent relief of S$14.7m (vs. S$48.9m in FY3/21). Tenant sales
and shopper traffic at FW expanded 8.7%/11.5% yoy in FY22, due to improved
consumption sentiments and the HK SAR government’s 2021 consumption voucher. FW
occupancy remained fairly stable at 99.6% and achieved a -27% rental reversion in FY22
(4Q: -18%). MAGIC has a remaining 9.6% of portfolio gross rental income coming from
FW’s lease expiries for FY3/23F. Management remains cautiously optimistic as the impact
of Covid-19 recedes and the government’s restrictive measures ease from 21 Apr 2022,
allowing for extended dining hours (till 10pm), increased capacity for public gatherings (to
4 pax), and the reopening of beauty parlours, cinemas and gyms.
Weak rental performance at GW
GW’s occupancy stayed at 94.3%, with reversions at -24% for FY22, as management
adopted an occupancy-retention strategy. Looking ahead, with ample incoming supply, we
think the weak outlook is likely to continue to drag on upcoming lease renewals. MAGIC
has 5.1% of portfolio rental income expiring in GW in FY23F. Meanwhile, Sandhill Plaza
(SP) and its Japan portfolio continue to deliver a +5%/+1% rental reversion and stable
occupancy of 98.6% and 97.7%, respectively. The Pinnacle Gangnam reported a 44%
rental reversion for FY22, with 6 office leases and 1 retail lease renewals. MAGIC has 3.1%
of portfolio rental income to be re-contracted in Japan and Seoul in FY23F.
Downgrade to Hold rating
We tweak down our FY23-24F DPU estimates by 1.45-1.5% post-results and maintain our
DDM-based TP at S$1.13. The share price had reacted positively to the introduction of a
cash-only consideration of S$1.1949/MAGIC unit, as one of the scheme considerations for
the proposed merger between MCT and MAGIC; the current share price is trading above
this consideration price. We believe near-term share price upside could be capped by the
consideration price. As such, we downgrade our rating to Hold. Upside risk: faster-thanexpected performance recovery in FW. Downside risks: slower-than-expected recovery at
FW and GW.