The Motley Fool

3 Things to Love About This REIT That Owns Festival Walk

Mapletree North Asia Commercial Trust (SGX: RW0U) is a commercial real estate investment trust (REIT) that is listed in Singapore. It has properties in China, Hong Kong, and Japan and its portfolio is valued at S$7.6 billion (US$5.5 billion), as of 30 June 2019. Mapletree North Asia Commercial Trust owns nine properties, with its sole Hong Kong asset – Festival Walk – taking up 66% of the total value.

The REIT has given investors plenty to cheer about; it has delivered total returns of 32.0% from the start of 2019 till early July. Other than its impressive unitholder returns, here are three things to like about the REIT.

Quality portfolio

The following shows the breakdown of the nine buildings in Mapletree North Asia Commercial Trust’s portfolio:

Mapletree North Asia Commercial Trust portfolio

Source: Mapletree North Asia Commercial Trust investor presentation

The largest property in its portfolio is Hong Kong’s Festival Walk. The building mostly comprises of retail shops. Since 2000, Festival Walk has been 100% occupied, which showcases the building’s strong positioning. In fact, a quick Google search shows that Festival Walk is well-liked by patrons and has 4.1 out of 5 stars.

Over at TripAdvisor, a reviewer in April 2019 commented:

“This shopping centre is located right next to the Kowloon Tong MTR station and is super easy to get to. There are many shops, a lot of which are quite high end. Festival Walk contains lots of restaurants, along with a cinema and ice rink. Plenty of things to do here.”

Other than Festival Walk, its other properties also enjoy high occupancy rates, bringing the overall portfolio occupancy to 99.1%, as of 30 June 2019.

Strong financial track record

Over the past five fiscal years, unitholders have received increasing distribution per unit (DPU).

DPU grew 17% from 6.56 cents in FY14/15 (fiscal year ended 31 March 2015) to 7.69 cents in FY18/19. The growth came on the back of gross revenue and net property income climbing consistently each year.

Mapletree North Asia Commercial Trust financials

Source: Mapletree North Asia Commercial Trust investor presentation

“Unitholder-friendly” management fee structure

Mapletree North Asia Commercial Trust is one of the rare Singapore REITs that I’ve come across with a management fee structure that is “unitholder-friendly”. This unique arrangement ensures that management is incentivised to deliver sustainable DPU growth over time.

For instance, Mapletree North Asia Commercial Trust’s REIT management fee consists of a base fee of 10% based on distributable income and a performance fee that is based on the year-on-year increase in DPU.

In fact, its annual report touts that it’s the “first Singapore REIT with fee structure aligned with investors’ interest where management fee structure is based on distributable income and DPU growth”.

More commonly, Singapore REITs have base management fees that are pegged to the valuation of assets in their portfolios while the performance fees are a fixed percentage of net property income per annum. Therefore, even if the REIT’s DPU doesn’t grow, the REIT managers still get paid, which could be to the detriment of unitholders if DPU doesn’t increase.

The Foolish takeaway

With a strong portfolio, consistent financial growth, and unitholder-friendly management, Mapletree North Asia Commercial Trust certainly ticks the right boxes.

Furthermore, since April last year, Mapletree North Asia Commercial Trust has been paying its DPU quarterly instead of every six months, giving those who rely on dividends to fund their daily lifestyle some respite.

At its current unit price of S$1.33, it has a distribution yield of 5.8%, which is certainly much higher than Link REIT’s (SEHK:823) yield of around 3% at its unit price of HK$90.55. Dividend investors who are looking for longer-term income should monitor Mapletree North Asia Commercial Trust as a possible addition to their portfolio.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Hong Kong contributor Sudhan P doesn’t own shares in any companies mentioned.