My Personal Analysis of Mapletree North Asia Commercial Trust

Festive Walk Riding Through The Storm

This month, I am going to perform my Personal Analysis of Mapletree North Asia Commercial Trust.

Mapletree North Asia Commercial Trust (“MNACT”) was listed on the Singapore Stock Exchange (SGX) on 7th March 2013. It is the first real estate investment trust (“REIT”) that offers investors the opportunity to invest in high quality commercial properties situated in prime locations in China and Hong Kong SAR. The flagship properties are Festive Walk in Hong Kong and Gateway Plaza in Beijing.

In the past few years, Mapletree North Asia Commercial Trust expanded its portfolio to include properties in Japan and South Korea.

Mapletree North Asia Commercial Trust Portfolio

Mapletree North Asia Commercial Trust Portfolio

Mapletree North Asia Commercial Trust portfolio comprises of commercial properties situated in prime locations in Hong Kong SAR, China,  Japan and South Korea.

China

Mapletree North Asia Commercial Trust has two properties in China, namely Gateway Plaza and Sandhill Plaza.

Gateway Plaza is one of the largest and most sought-after Grade-A office building. Gateway Plaza comprises of two 25-storey towers connected by a three-storey podium area, as well as three underground floors.

Sandhill Plaza was acquired in June 2015. The Plaza is a premium quality business park development in the mature area of Zhangjiang Hi-tech Park, part of Shanghai’s Free Trade Zone.

Hong Kong

Festive walk is one of the top ten largest mall in Hong Kong. It comprises of a seven-storey territorial shopping mall, a four-storey office component on top of the mall, as well as three floors of underground car parks.

Japan

  • ABAS Shin-Yokohama Building
  • Fujitsu Makuhari Building
  • Hewlett-Packard Japan Headquarters
  • Higashi-nihonbashi 1-chome Building
  • IXINAL Monzen-nakacho Building
  • mBAY POINT Makuhari
  • Omori Prime Building
  • SII Makuhari Building
  • TS Ikebukuro Building

South Korea

In October 2020, the Manager completed its acquisition of The Pinnacle Gangnam in Seoul. This was co-investment with the Sponsor, the total acquisition cost of the property was S$276.4 million (based on MNACT’s effective interest of 50.0%).

The Pinnacle Gangnam is located at 119, Nonhyeon-dong, Gangnam-gu, Seoul. It is a
20-storey freehold office building with six underground floors and 181 parking lots.

The office building has direct access to an underground subway station (Gangnam-gu Office station) and is within 10 minutes by car from Gangnam’s high-end retail district (Cheongdam)
and from COEX Convention & Exhibition Center.

Financial Summary

FY20/21 Financial Results

The Distributable Income in FY20/21 was lower than FY19/20 because there were top-ups to the distributable income in FY19/20 to mitigate the decline in DPU and to enable a certain level of distributable income to the Unitholders (until such time the loss of revenue was recovered through the insurance claims).

During FY19/20, there were no rentals collected during the period when Festival Walk mall was temporarily closed from 13 November 2019 to 15 January 2020 and its office tower from 13 to 25 November 2019 (“Festival Walk Temporary Closure”).

The decline in DPU was partially offset by the full-year contributions from MBP and Omori acquired on 28 February 2020, and The Pinnacle Gangnam (“TPG”) acquired on 30 October 2020.

FY20/21
(S$’000)
FY19/20
(S$’000)
Change
Gross Revenue 391,415 354,478 10.4%
Net Property Income 292,040 277,487 5.2%
Distributable Income 210,150 227,928 (7.8)%
Distribution Per Unit (“DPU”) (cents) 6.175 7.124 (13.3)%

Mapletree North Asia Commercial Trust Gross Revenue by Asset

In FY20/21, Festive Walk and its Japan properties make up the bulk of the contribution of Gross Revenue by S$185.2m and S$101.3m respectively.

Occupancy Rates

As of 31st March 2021, overall portfolio occupancy stood healthy at 97.0%.

Mapletree North Asia Commercial Trust Lease Expiry Profile 31 Mar 2021

Overall Weighted Average Lease Expiry (“WALE”) stood at 2.3 years.

As you can see above, 14.6% of the leases at Festive Walk are expiring in FY21/22. With the current COVID-19 pandemic conditions and possible riot conditions in Hong Kong, it is unknown whether MNACT will have issues renewing the leases. Investors should continue to monitor the lease renewal.

The lease expiries for the assets in China, Japan and Korea remains low.

Distribution History

Distribution per unit (“DPU”) in FY20/21 was 13.3% lower than that in FY19/20.

This was due to top-ups to the distributable income (“Festival Walk Top-ups”) in FY19/20 to enable a certain level of distributable income and DPU to mitigate the loss of rental during the Festival Walk Temporary Closure.

MNACT DPU

Debt

As of 31st March 2021, gearing ratio stood at 41.5%. This was an increase of 2.2% as compared to 39.3% in 31st March 2020.

Mapletree North Asia Commercial Trust Debt Maturity Profile 31 Mar 2021

The Debt Average Term to Maturity stood at 3.12 years. From what I can see, there is no worrying debt in the short term since 6% of total debt are maturing only in March 2022.

Management

Ms. Cindy Chow Pei Pei is both an Executive Director and the Chief Executive Officer of the Manager.

She has more than 23 years of investment experience in the region, including China, Hong Kong SAR, India, Japan, Singapore, Thailand and Vietnam. Prior to joining the Manager, Ms. Chow was Chief Executive Officer, India with the Sponsor, where she was instrumental in establishing the Sponsor’s investments in India.

A quick check on MNACT’s latest news shows that she has participated in the Distribution Reinvestment Plan. This means she held more shares in MNACT. This is a positive sign which shows the CEO’s confidence in MNACT.

Current Valuation

Based on the current share price of S$1.03 and FY20/21 DPU of 6.175 cents, this translate to a current dividend yield of 6.00%.

Mapletree North Asia Commercial Trust Share Price 16 Jul 2021

Summary of My Analysis of Mapletree North Asia Commercial Trust

From what I can see, the manager of Mapletree North Asia Commercial Trust is still working on its strategy of diversifying its assets into multiple countries. The Hong Kong riots has taught the manager the importance of diversification when its flagship mall Festive Walk was damage during the riots and had to close for damage repairs.

In summary

  • Festive Walk remains the top revenue contributor of 47% with Japan properties contributing 26%. A good sign that MNACT continues to diversify its asset.
  • Gearing ratio is high at 41.5%, however, there is no worry debt maturity in the short term.
  • 14.6% of the leases at Festive Walk are expiring in FY21/22. With the current COVID-19 pandemic conditions and possible riot conditions in Hong Kong, it is unknown whether MNACT will have issues renewing the leases. Investors should continue to monitor the lease renewal.
  • CEO opted for Distribution Reinvestment Plan which shows her confidence in MNACT.
  • Decent current dividend yield of 6.00%. The dividend yield can trend higher if Hong Kong situation related to COVID-19 and riot improves. However, I foresee the DPU to remain depressed in the short term.

I will invest into MNACT if it is a long term play. In the short term, I will give MNACT a miss given the low vaccination rates in Hong Kong. I have not heard any more riot situations in Hong Kong but it may be due to the COVID-19 situation and rioters are staying indoors.

I hope you enjoy my Personal Analysis of Mapletree North Asia Commercial Trust!

My Personal Analysis of Frasers Industrial Thailand REIT (SET:FTREIT)

Frasers Property Logistics Park (Bangna)

I will like to share my personal analysis of Frasers Industrial Thailand REIT.

Frasers Industrial Thailand REIT (FREIT) is an Industrial and Logistics Trust established on 12th December 2014 to manage industrial and logistics properties throughout Thailand with gross leasable area of approximately 2.03 million square metres. It is currently the biggest industrial and logistics REITs in Thailand.

Frasers Industrial Thailand REIT manages an estimated of 636 units that are widely scattered in 30 industrial and logistics prime areas in Thailand with a total property fair value of  44,137.5 million Baht.

Frasers Industrial Thailand REIT is listed on the Stock Exchange of Thailand (SET) whereby the initial date of trading was 9 January 2015.

Frasers Industrial Thailand REIT Portfolio

Frasers Industrial Thailand REIT’s investment portfolio comprises of 636 units of factories and warehouses. These units are high-quality properties strategically located in key industrial areas of Thailand such as Ayutthaya, Pathum Thani, Samut Prakan, Prachinburi and the Eastern Economic Corridor (EEC).

Frasers Industrial Thailand REIT Property Breakdown 20 June 2021

Let us look at the properties in more details.

Project Freehold Leasehold No. of units Net leasable area
(sq.m.)
Factory 337 863,885
Bangpa-in Industrial Estate 100% 15 32,300
Hi-Tech Industrial Estate (Ban Wah) 88% 12% 40 111,828
Rojana Industrial Park 92% 8% 61 145,732
Navanakorn Industrial Promotion Zone 91% 9% 23 56,500
Bangpoo Industrial Estate 100% 13 40,325
Amata City Chonburi Industrial Estate 90% 10% 103 271,225
Amata City Rayong Industrial Estate 78% 22% 38 100,400
Hemraj Industrial Estate (Bowin) 100% 3 7,200
Pinthong Industrial Estate (Project 1) 100% 19 39,250
Pinthong Industrial Estate (Project 2) 59% 41% 9 21,025
Pinthong Industrial Estate (Project 3) 87% 13% 13 38,100

From the above, there is one interesting thing I have found. In Thailand, some industrial complexes are called “industrial estates”, whereas others are called ‘”industrial parks”. Do you know the differences?

The term “industrial estate” can only be used by estates belonging to or jointly developed with the Industrial Estate Authority of Thailand (IEAT). IEAT is a state enterprise established by the Ministry of Industry to develop more planned and regulated industrial complexes.

Under IEAT, the customers can enjoy special privileges like consolidated, efficient document processing and perhaps most importantly, the right to 100% foreign ownership of land. As you can see, a lot of properties under Frasers Industrial Thailand REIT is termed “industrial estate”. This reflects the underlying quality of the assets which in turn attracts investors.

Project Freehold Leasehold No. of units Net leasable area
(sq.m.)
Warehouse 299 1,166,511
Frasers Property Logistic Center (Rojana) 100% 3 18,324
Frasers Property Logistic Center (Wang Noi 1) 100% 13 67,306
Frasers Property Logistic Center (Wang Noi 2) 100% 8 19,600
Cold Storage (CTD) 100% 1 18,354
Frasers Property Logistic Center (Bangplee 1) 100% 10 76,477
Frasers Property Logistic Center (Bangplee 2) 100% 9 124,634
Frasers Property Logistic Center (Bangplee 3) 100% 28 106,692
Frasers Property Logistic Center (Rojana Prachinburi) 100% 8 14,832
Frasers Property Logistic Center (Bangna) 31% 69% 82 258,260
Frasers Property Logistic Center (Amata City) 100% 7 19,650
Frasers Property Logistic Center (Sriracha) 100% 22 99,789
Frasers Property Logistic Center (Phan Thong) 100% 5 10,600
Frasers Property Logistic Center (Laemchabang 1) 100% 21 69,404
Frasers Property Logistic Center (Laemchabang 2) 100% 26 81,700
Frasers Property Logistic Center (Laemchabang 3) 100% 24 80,012
Frasers Property Logistic Center
(Eastern Seaboard 1 A)
100% 7 35,430
Frasers Property Logistic Center
(Eastern Seaboard 1 B)
100% 12 28,968
Frasers Property Logistic Center
(Eastern Seaboard 2 A)
100% 4 15,800
Hemraj Industrial Estate (Bowin) 100% 9 20,700

Many of the warehouses such as Frasers Property Logistic Centers are located near the Suvarnabhumi Airport, Bangkok Port and Laemchabang Deep Seaport.

The assets are strategically located in prime locations either near seaports or airport.

Occupancy

As of Q2FY21, the average portfolio occupancy stood at 86.3%. In my opinion, the occupancy is still not at optimum levels as my expectation is above 90%. Nevertheless, I can see that overall portfolio occupancy is improving as compared to the 1st quarter of 2021.

Frasers Industrial Thailand REIT Occupancy Q2FY21

The tenant base is well-diversified with no single tenant accounting for more than 10.0% of portfolio Gross Rental Income (GRI).

It is noteworthy that 30% of the tenants are from the Logistics sector and 41% of the tenants are Japanese.

Frasers Industrial Thailand REIT Tenant Mix 2Q2021

Weight Average Lease Expiry (WALE) stood at 2.1 years. Unless a step up rent component is incorporate in, I consider the WALE to be rather short.

Financial Summary

If we compare the gross revenue in 1H2021 and 1H2020, it grew by 10% to $1,674 million baht.

I realise Frasers Industrial Thailand REIT like to use Net Investment Income instead of Net Property Income which is commonly used in Singapore REITs. There is a difference between Net Investment Income and Net Property Income.

Net Property Income is the Gross Revenue of a Property minus the Property Related Expenses such as building maintenance etc.

Net Investment Income refers to income receive from investment assets such as stocks, bonds, funds and property before taxes are accounted for.

In the case of Frasers Industrial Thailand REIT, I am uncertain if all income comes solely from the leasing of its property as I could not find any information about it. I prefer investment income to be differentiated from property leasing income so that I can better evaluate the worth of its properties.

1H2021
THB million
1H2020
(THB million)
Change
Gross Revenue 1,674 1,674 10.0%
Net Investment Income 1,155.9 997 15.9%
Distributable Income 1,146 1,001 14.0%
Distribution Per Unit (“DPU”) (baht) 0.3360 0.334 0.6%

Distribution History

The distribution per unit for each quarter is rather consistent. In my opinion , DPU growth is lack lustre with only 0.6% year-on-year.

Frasers Industrial Thailand REIT Distribution Per Unit

Debt

As of 31st December 2020, gearing ratio stood at low level of 26.1%.

There is still a huge debt headroom of THB 15,433.0 million. This means there is plenty of room for further acquisitions.

Management

The first thing I wish to highlight is that Frasers Industrial Thailand REIT has a good sponsor which is Frasers Property (Thailand) Public Company Limited (FPT).

The following is extracted directly from Frasers Property Industrial REIT website.

Mr. Peerapat Srisukont is the Director and Managing Director. Mr Peerapat has been Managing Director of Frasers Property Industrial REIT Management (Thailand) Co., Ltd. since August 2016.

As Managing Director, he oversees overall operations of the REIT manager, sets the strategic objectives for Frasers Industrial Thailand REIT, create engagement with stakeholders and gives advice to management. He reports the operations of Frasers Industrial Thailand REIT to The Board of Directors of the REIT Manager.

He has more than 20 years’ experience in Industrial and logistics property management. He oversaw the conversion of three property funds, TFUND, TLOGIS and TGROWTH, into Frasers Industrial Thailand REIT, making Frasers Industrial Thailand REIT become “the largest industrial and logistics REIT in Thailand”.

Current Valuation

Based on FY20 Distribution Per Unit (DPU) of 0.6690 baht and current share price of 14.10 THB, this translate to a current dividend yield of 4.74%.

Are we late in the game already? If we bought at 12 baht 3 months ago, this will give us a dividend yield of 5.58% which is still satisfying for a dividend investor.

FTREIT Share Price 18 June 2021

Summary of My Analysis of Frasers Industrial Thailand REIT

Personally, I felt that this is a quality REIT whereby you are focusing on investing in Thailand’s Industrial and Logistics assets.

You might ask me “Why Thailand?” In my opinion, Thailand is an unexplored territory whereby there is a lot of value that can be unlocked there.

For example, the rising cost of electricity and leases in Singapore have driven companies to setup their factories and warehouses elsewhere. Thailand provided such matching conditions such as cheaper electricity and land leases as compared to Singapore.

In summary, the positives of Frasers Industrial Thailand REIT are

  • It is the biggest industrial and logistics REITs in Thailand.
  • The assets are strategically located in prime locations either near seaports or airport.
  • Underlying quality of the assets under IEAT attracts investors.
  • Huge debt headroom of THB 15,433.0 million. This means there is plenty of room for further acquisitions.

What I did not like about Frasers Industrial Thailand REIT are

  • Low average portfolio occupancy rate of 86.3%.
  • Short WALE of 2.1 years.
  • Low current dividend yield of 4.74% at share price of 14.10 THB.
  • Low Distribution Per Unit (DPU) growth of 0.6% year-on-year

That is all folks and I hope you like my personal analysis of Frasers Industrial Thailand REIT!