This afternoon (15 July 2021), Mapletree North Asia Commercial Trust (SGX:RW0U) held its 8th annual general meeting (AGM) for the financial year 2020/21 ended 31 March 2021, which I have attended as a unitholder.

Apart from a summary of the presentation by both the Chief Executive Officer Ms Cindy Chow (where she discussed the individual properties in the REIT’s portfolio, as well as with the outlook ahead) as well as the Chief Financial Officer Mr Ng Wah Keong (where he focused on the REIT’s financial performance for the financial year under review), you will also read about the responses by the REIT’s management on a number of questions submitted by fellow attendees during the meeting, along with results of the resolutions put to vote during the meeting.

Let’s get started…

Financial Summary and Key Highlights

  • Gross revenue and net property income went up by 10.4% (to S$391.4m vs. S$354.5m in FY2019/20) and 5.2% (to S$292.0m vs. S$277.5m in FY2019/20) respectively due to contributions from the newly acquired properties in Japan (mBAY POINT Makuhari and Omori Prime Building), and in South Korea (The Pinnacle Gangnam, which the REIT co-invested with its Sponsor.) Excluding the contributions from the newly acquired properties, its net property income was S$267.1m.
  • However, its distributable income fell by 7.8% to S$210.2m (vs. S$227.9m in FY2019/20), and its distribution per unit went down by 13.3% to 6.175 Singapore cents/unit (vs. 7.124 Singapore cents/unit in FY2019/20) due to higher rental reliefs granted to support tenants affected by the ongoing Covid-19 pandemic, lower average rental rates at Festival Walk (Hong Kong) and Gateway Plaza (Beijing), along with top-ups to the distributable income (due to the temporary closure of Festival Walk) in FY2019/20.
  • Mr Ng highlighted that the REIT have aligned their interests with its unitholders by waiving entitlement to performance fee till the distribution per unit exceeds that achieved in FY2019/20 (which was before the pandemic), in consideration of the impact of the pandemic on the REIT’s distribution to its unitholders.
  • Together with the 3 acquisitions, Mr Ng shared that the net property income contribution from Festival Walk has been reduced to 46.9% (from 53.7% last year), and at the same time, its net property contribution from its Japan properties have been increased to 22.4% (from 14.4% last year.) In terms of the REIT’s assets under management by geographical location, 20% is contributed by its properties in Japan and South Korea, while the remaining 80% is contributed by its properties in Greater China.
  • The REIT’s gearing ratio as at 31 March 2021 was at 41.5%. However, post the REIT’s acquisition of Hewlett-Packard Japan Headquarters in June 2021 (which is single-leased and with a long balance lease term at 8.8 years), its gearing ratio would have been increased to 41.9%. That said, Mr Ng added that the Manager is comfortable with an aggregate leverage ratio of not more than 45.0% (and at its current gearing ratio, there remains S$470m of debt headroom for future acquisitions), with an interest coverage ratio of at least 2.5 times.
  • On the funding options for acquisitions, Mr Ng explained that the REIT will take into account a number of factors, including the size of acquisition, available funding options (including the cost of each funding option), impact on distribution to unitholders as well as gearing ratio, along with market conditions at that point in time.
  • Regarding the frequency of distribution payout to unitholders, Mr Ng said that the REIT’s distribution policy is to distribute at least 90.0% of its distributable income on a semi-annual basis (from declaring a distribution on a quarterly basis previously), as it has adopted the announcement of financial statements on a half-yearly basis with effect from FY2020/21.

Portfolio Summary

Festival Walk:

  • Ms Chow shared that occupancy rate of the property remains very stable at 99.9% (compared to 99.8% last year.) However, the average rental reversion fell by 21% for its retail segment due to the pandemic last year, along with a social incident in Hong Kong the year before.
  • To support its tenants through the pandemic, Ms Chow shared that apart from granting rental reliefs, as well as adopting flexible lease structures (and this contributed to mall’s negative rental reversion.)
  • She also updated that recovery works to the mall (as a result of the earlier damages incurred) are still ongoing, and tenants that are affected by the hoardings have been provided with rental support.
  • Pertaining to the insurance claims, Ms Chow said that the Manager has received interim payments of S$46m from the insurers in FY2020/21, which are non-distributable (they will be recorded as non-operating income in the financial statements), and that the finalisation of insurance claims remains in progress.
  • For the property’s office component, Ms Chow updated that it remains at full occupancy, and that it contributes to less than 10.0% of the gross revenue of the property.
  • Moving forward, the REIT will continue to strengthen the mall’s position to retain its attraction as a community mall. Also, as the Covid situation continues to stabilise and improve, and with progressive completion of the recovery works at the mall, the REIT expects the amount of rental reliefs granted and the impact on its revenue to be further reduced. However, she expects the property’s rental reversion to be lower in the financial year ahead.

Gateway Plaza:

  • Despite the weaker business condition in the Beijing market, Ms Chow said that the occupancy rate of the property continues to remain resilient at 92.9% (compared to 91.5% last year), but the average rental reversion was at -7%.
  • On the positive side, Ms Chow shared that there were expansion requests from existing tenants, and new demand from prospects seeking relocation to a well-managed building near the city, and the REIT will continue to tap onto this demand to boost the property’s occupancy rate, even though she expects rental reversion for the financial year ahead remain weak.

Sandhill Plaza:

  • Occupancy rate as at 31 March 2021 was at 97.9%, with average rental reversion at +5% – the strong performance was underpinned by the tenants that are in the TMT (Technology, Media & Entertainment, and Telecommunications) and biomedical sectors which are relatively less impacted by the pandemic.

Japan Properties:

  • Amidst the economic uncertainties, with tenants continuing to keep an eye on cost, Ms Chow updated that the REIT’s Japan properties continue to remain resilient, with occupancy rate going up to to 97.8% as at 31 March 2021 (from 94.7% as at 31 March 2020), with the average rental reversion at +2%.

The Pinnacle Gangnam:

  • Occupancy rate of the South Korean property improved to 96.5% as at 31 March 2021 (from 89.6% as at 31 March 2020) due to an increase in office demand from the high-growth technology-based industries in Gangnam district.

Outlook Ahead

  • Ms Chow opined that the pace of recovery will depend on the progress of vaccine deployment, a decline in global infection rates, as well as geopolitical developments.
  • She added that REIT will continue with its strategy to reduce concentration on Festival Walk through accretive acquisition opportunities in China, Japan, and South Korea. However, any acquisition opportunities will be subjected to the depth and scale of the property market where the asset is located in, yield thresholds, distribution per unit accretion, location, asset enhancement potential, building and facilities specifications, along with tenant mix and occupancy levels.

Responses to Questions by AGM Attendees

  • On a question as to why the REIT decided to offer perps at a premium instead of borrowing (and taking advantage of the current low interest rate environment) to finance the acquisition of Hewlett-Packard Japan Headquarters, Mr Ng responded that with every fund raising exercise, the REIT will carefully consider and evaluate which strategy is the most cost-efficient, and in this case, it was a combination of perps and borrowing.
  • A unitholder asked about the outlook of the REIT ahead, to which the REIT’s CEO, Mr Paul Ma shared that rental reliefs to tenants affected by the pandemic have decreased significantly following the number of infections coming down. With that, he was cautiously optimistic about a return to pre-Covid condition in time to come.
  • The same unitholder also asked about the REIT’s direction on acquisition, which Ms Chow responded that the REIT will continue to proactively seek out suitable acquisition opportunities in China, Japan, as well as in South Korea.
  • Another unitholder asked whether or not the REIT has any plans to acquire another mall in Hong Kong to bring down the concentration on Festival Walk. In response to this, Ms Ma said that the REIT will very unlikely do considering such a decision will lead to an increase in the REIT’s concentration risk on a single geographic location (in Hong Kong.) He also cited that there are no other malls of the same scale like Festival Walk.
  • Pertaining to a question on a possible acquisition and growth lag of Mapletree North Asia Commercial Trust compared to other Mapletree REITs (particularly Mapletree Logistics Trust as well as Mapletree Industrial Trust, as they are very active in acquiring properties), along with the level of support provided by the Sponsor, Mr Ma explained that most of the acquisitions by the other 2 Mapletree REITs are in the range of S$50 and S$100m, or smaller, and as such, they will need to acquire more properties to build up their asset size. On the other hand, the size of each acquisition made by Mapletree North Asia Commercial Trust is much larger, which explains why the number of acquisitions by the REIT pales in comparison compared to the other two Mapletree REITs. On the concerns regarding the support by the Sponsor, Mr Ma shared that the REIT has a right of first refusal to a retail mall in Osaka, along with an office property in China as well as in Tokyo. However, he added that before the REIT makes any acquisition, it will need to carefully evaluate to make sure that it meets the criteria, and that acquisition must be one that is accretive to its unitholders.
  • With a spade of mergers going on between Singapore REITs of late, a unitholder asked if there is any chance of merger between Mapletree North Asia Commercial Trust with Singapore REITs. In response to this, Mr Ma said he does not foresee any merger possibility.
  • Finally, a unitholder asked about the impact of visitor footfall to Festival Walk due to border closure, to which Mr Ma said that Festival Walk is a community asset and is not reliant on tourists. He added that tourist footfall only accounted for less than 10% towards the mall’s total visitor footfall.

Results of Resolutions Put to Vote during the Meeting

  • Resolution #1, which is to to receive and adopt the Trustee’s Report, the Manager’s Statement, the Audited Financial Statements of Mapletree North Asia Commercial Trust for the financial year ended 31 March 2021 and the Auditor’s Report thereon was passed with 99.97% (or 2,019,819,502) of the votes for, and 0.03% (or 552,948) of the votes against.
  • Resolution #2, which is to re-appoint PricewaterhouseCoopers LLP as the Auditor of Mapletree North Asia Commercial Trust and to authorise the Manager to fix the Auditor’s renumeration, was passed with 99.95% (or 2,020,733,118) of the votes for, and 0.05% (or 1,097,344) of the votes against.
  • Resolution #3, which is to authorise the Manager to issue Units to make or grant instruments convertible into Units, was passed with 98.41% (or 1,989,618,766) of the votes for, and 1.59% (or 32,188,248) of the votes against.

Closing Thoughts

Personally, I felt that the entire presentation was very well-delivered by both the REIT’s CEO and CFO, and questions from fellow attendees were well-addressed.

In terms of outlook, I echo the sentiments of the management that as the number of infections gradually come down, the governments lifting the safe distancing measures when the situation stabilises, and with people returning to the malls (for the case of Festival Walk, and the REIT can slowly taper off rental support for the tenants), as well as to the offices, its financial performances will also eventually recover to pre-Covid days.

Additionally, I am optimistic of the REIT’s management making more yield accretive acquisitions over time to further reduce the concentration on Festival Walk in Hong Kong.

With that, I have come to the end of my summary of Mapletree North Asia Commercial Trust’s AGM. As always, hope you’ve found it useful.

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Disclaimer: At the time of writing, I am a unitholder of Mapletree North Asia Commercial Trust.

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