Brokers' take: Analysts trim target prices for MNACT amid weaker rental reversions
CGS-CIMB Research and OCBC Investment Research are lowering their target prices for Mapletree North Asia Commercial Trust (MNACT), on the back of weaker rental reversions amid a cautious retail environment.
However, both research houses are maintaining their respective "add" and "buy" recommendations on the mall and office landlord.
"Given the need to defend occupancy rates amid a still challenging environment, management had to be more lenient on asking rents," said OCBC's research team in a report on Tuesday. "As such, rental reversions weakened significantly for some of its properties."
The decline in Q1 was led by an average rental reversion of negative 34 per cent for the retail spaces at Festival Walk in Hong Kong, while Gateway Plaza in Beijing saw negative rental reversion of 27 per cent.
In a quarterly business update for Q1 FY21/22 end-June on Monday, the manager of MNACT guided that Festival Walk will continue to see weakened rental reversion for the rest of the year, due to the prolonged impact of Covid-19 as well as ongoing repair works at the mall, which are targeted to be completed by end-2021.
Meanwhile, the manager added that the weak business outlook affecting demand for office space and the influx of supply from new office buildings in Beijing are expected to continue to impact the performance of Gateway Plaza.
A NEWSLETTER FOR YOU
Tuesday, 12 pm
Property Insights
Get an exclusive analysis of real estate and property news in Singapore and beyond.
To its credit, despite the lower average rental rates, MNACT registered a 14.3 per cent increase in net property income (NPI) to S$78.3 million in the first quarter. The higher NPI was largely attributed to lower rental reliefs of S$4 million granted to retail tenants at Festival Walk during the quarter.
"The improvement was broadly in line with our expectations," said CGS-CIMB analysts Lock Mun Yee and Eing Kar Mei in a report on Tuesday.
The analysts added that MNACT is trading at an "inexpensive" 6.6 per cent distribution per unit (DPU) yield to FY21/22 forecasts.
"We believe much of the weak retail outlook at Festival Walk has been factored into the current share price," they said.
However, CGS-CIMB is lowering its DPU estimates for FY22-FY24 by 3.4 to 4.9 per cent to "factor in weaker rent reversion assumptions at Gateway Plaza".
Accordingly, the research house is lowering its target price for MNACT to S$1.12, from S$1.15 previously.
Meanwhile, OCBC is keeping its DPU forecasts unchanged, but lowering its fair value by S$0.03 to S$1.18, after applying a "slight" discount to MNACT's environmental, social and governance valuation in its assumptions.
"MNACT has relatively weak business ethics policies and programmes, coupled with weak corporate governance practices compared to peers," the research house said.
Units of MNACT were trading 2.9 per cent or S$0.03 lower at S$1.01 as at 3.35pm on Wednesday.
Copyright SPH Media. All rights reserved.
