4 Reasons Why Mapletree NAC Trust Is A Good Buy

Mapletree North Asia Commercial Trust is one of Singapore's largest diversified REITs which owns properties for commercial and retail purposes. It is a relatively new REIT that was only listed on the Singapore market in 2013 but has grown rapidly to become one of the largest REITs in Singapore with properties in China, Hong Kong, and Japan. It has been a rough year for Mapletree NAC Trust with the Hong Kong protests causing the closure of their Festival Walk mall in Hong Kong and the subsequent COVID-19 pandemic in China which decreased traffic in their properties significantly. This has caused their share price to fall by more than 20% to the current share price of $0.94. Despite these recent challenges, I still feel that Mapletree NAC Trust is a good REIT to add to your portfolio in the long run. Here are my 4 reasons why Mapletree NAC Trust is a good buy. 

Attractive Dividends

Mapletree NAC Trust has a 7-year consistent dividend history since 2013. They have been paying out dividends to shareholders consistently every year without fail for 7 years. Moreover, they have an attractive average dividend yield of 7.8% for the past 5 years, which is significantly higher than most blue-chip REITs with an average dividend yield of 4-5%. Their distributable income and distribution per unit  (DPU) has been increasing steadily since their Initial Public Offering in 2013. However, their distributable income decreased from $240.7 million in FY18/19 to $227.9 million in FY19/20 and DPU decreased from 7.690 cents in FY18/19 to 7.124 cents in FY19/20 due to the challenging circumstances in Hong Kong and China. This is still a relatively high distribution per unit and dividend yield compared to Singapore blue-chip REITs. Mapletree NAC Trust is definitely able to continue increasing its dividend payouts in the future once the COVID-19 pandemic tides over. This is one of the reasons why it is such a popular REIT in Singapore. 

Diversified Tenant Portfolio and High Occupancy Rate

Mapletree NAC Trust has an extremely well-diversified tenant portfolio. Their portfolio consists of properties in China, Hong Kong, and Japan worth a total of $8.3 billion as of 31 March 2020. They have managed to source enough funds to acquire two more properties in Japan ( MBP and Omori) in 2020. Their tenants come from more than 15 different industries and no single tenant is responsible for more than 7.4% of their monthly gross revenue income. Their top 10 tenants only contributed 36.1% of their portfolio gross revenue income in March 2020. This means that they are not overly reliant on only a few tenants for a significant amount of their income and their risk is diversified across many industries. This prevents them from facing possible cashflow issues in difficult economic times such as the current COVID-19 pandemic. Furthermore, they have an impressive 95.2% occupancy rate (>90%) as of March 2020 which is comparable to the average blue-chip REIT. This means that they are maximizing their properties to generate income. Higher-income would mean higher dividend payouts for shareholders. Their well-diversified tenant portfolio and high occupancy rate would make their dividend payouts high and sustainable. 

Strong Sponsor

Mapletree NAC Trust is sponsored by Mapletree Investments Pte Ltd (Mapletree). Mapletree is one of Asia's largest real estate development, investment, capital, and property management company headquartered in Singapore. Mapletree manages four Singapore REITs and five private equity real estate funds. They have a diverse portfolio of assets in the Asia Pacific, Europe, the United Kingdom, and the United States. Mapletree's portfolio consists of office, retail, logistics, industrial, data center, residential, and lodging properties with a total worth of $60.5 billion as of 31 March 2020. A strong sponsor such as Mapletree can provide financial support and lucrative properties to Mapletree NAC Trust in the future. This lowers the risk associated with Mapletree NAC Trust and increases investors' confidence in Mapletree NAC Trust. Mapletree NAC Trust has an extremely low chance of failing or facing cash flow problems but even if it does, it will always be 'protected' by its strong sponsor. This is one of the reasons why Mapletree NAC Trust is highly popular in Singapore as it has strong proven backing by its sponsor. 

Appropriate Debt Gearing Ratio

Mapletree NAC Trust's debt gearing ratio increased from 36.6% in March 2019 to 39.3% in March 2020. This increase is largely due to borrowings to partially fund the acquisition of two more properties in Japan in 2020 (MBP and Omori). The debt gearing ratio of 39.3% is still within the appropriate gearing ratio of 40% (Monetary Authority of Singapore has allowed REITs to increase their debt gearing ratio to 50% due to the COVID-19 pandemic). This increase in the debt gearing ratio is not expected to have a significant impact on Mapletree NAC Trust risk profile. Furthermore, the manager has exercised prudent capital management and staggered the debt payments across the years such that no more than 25% of the debt is due in any one year. Mapletree NAC Trust has a strong balance sheet and has credit facilities of $374.4 million that remain undrawn and a cash balance of $207.8 million. The manager has also managed to ensure Mapletree NAC Trust is not exposed to high-interest rates and forex risks. Mapletree NAC Trust is well managed and has a low risk of running into cash flow problems, making a stable and reliable REIT. 

Verdict

In my opinion, Mapletree NAC Trust is one of my favorite diversified REITs in Singapore as it provides sustainable high dividend yields in rapidly expanding markets. With the COVID-19 pandemic slowing down and China reopening, I am more than confident Mapletree NAC Trust will be able to increase its dividend payouts soon. Its current share price of $0.940 is 100% a bargain and I would definitely add more of it to my portfolio if I had cash. It has proven itself over the years and has yet to disappoint. They were still able to maintain a healthy balance sheet and decent dividend yield despite the many challenges they have faced this year. 

Source: Mapletree NAC Trust 7th Annual General Meeting