Friday, April 30, 2021

What's the intrinsic value of Mapletree North Asia Commercial Trust (MNACT) after earnings report?

A year has passed since I last wrote about Mapletree North Asia Commercial Trust (MNACT); check it out here. Back then, MNACT was hit with a double whammy in the form of Hong Kong protests followed by the Covid-19 pandemic.

The Reit took a tumble and closed at $0.790 in 14th May 2020. Today, the dust has settled a little and it closed at $1.09 as of 29th Apr, a YTD return of 8.3%. Despite the price improvement, I believe that better days are ahead for this Reit.

As I have done a thorough analysis in my previous blog post, I won’t go so in-depth this time around; instead, I will revisit my valuations and share my thoughts on the Gangnam property acquisition.

Similar to last year, I will be using Sum of the Parts valuation and Discounted Dividend Model to determine its intrinsic value. As interest rates have changed, I will recalculate the discount rate.

To determine the discount rate via CAPM Model

Discount Rate= E(R)= Rf + β (Rm - Rf 6.33

β= 0.94

Rf= 1.610%

Rm= 6.63%

Distributable income= 72% of NPI

1. Properties in Japan

I must say that these are the sets of properties in MNACT that I like the most due to their freehold tenure, full occupancy (with the exception of mBAY POINT Makuhari), and loyal tenants who have occupied the buildings since they were first constructed - almost as if the buildings were built for them.

Retrospectively, I was overly conservative in projecting a dip in rental income for the properties acquired in 2019 and zero growth for properties acquired in 2018. It turns out that there was no drop in Net Property Income (NPI), but instead a surprise increment of 11.0%.

This was how 11% was derived:


NPI for MPB and OPB (annualized) $1.8mil X 12= $21.6 mil

NPI for Japan properties acquired in 2018= $38.137 mil

NPI FY19/20= $59.737 mil.

FY 20/21

NPI = $66.326 mil

Increment= (66.326-59.737)/(59.737) x 100% =11.03% 

For FY20/21 I projected total NPI of $39.937+ $21.362= $61.259 mil.

$66 mil vs $61 mil.

Turns out to be a positive surprise!

The last earnings report showed that the leasing demand in Japan had been stable; unfortunately, Japan was again hit by a resurgence of Covid-19 cases. This led to a quasi state of emergency in parts of Japan such as Chiba, Tokyo and the other small city states.

As the Covid-19 situation in Japan remains very fluid, I prefer to stick on the conservative side. I will assume no growth in NPI from 2021 till 2024, and 2% perpetual growth from 2025 onwards.

Sum of all Present Value= S$1,008,441,000
No. of Units in issue= 3,434,336,938
Per share value (Properties in Japan)= $1,008,441,000/3,434,336,938= $0.2936

2. Properties in China - Sandhill Plaza and Gateway Plaza

Sandhill Plaza

If there’s a second favourite property, this would be my pick.

Like most tech stocks, this property is clearly a beneficiary of Covid-19 with a 5% rental reversion from the prior year and high occupancy of 97.9% during the pandemic. This decentralized business park attracts cost-sensitive tenants, as there has been a shift in demand towards suburban areas due to economic uncertainties.

According to reports, 100% of office staff in Shanghai returned to the office as of April 2020 and the rental market is expected to be resilient. The majority of tenants consists of growing high-tech, IT, and R&D sectors which have been less impacted by Covid-19.

The top tenants seem to be ranked alphabetically, but according to this source, the largest tenant is the entertainment titan, Disney.

Its Compound Annual Growth Rate (CAGR) of NPI stands at 1.24%.

I will assume a 1.24% growth in NPI from 2021 till 2024, and 2% perpetual growth from 2025 onwards.

Sum of all Present Value= S$379,755,000
No. of Units in issue= 3,434,336,938
Per share value (Properties in China- Sandhill Plaza)= $379,755,000/3,434,336,938= $0.1106

Gateway Plaza - Beijing

This commercial hub has sadly been a drag on overall earnings. The only saving grace is that RMB appreciated against SGD and that helped cushion the dip in earnings. The sponsor also deserves much credit by keeping occupancy at 92%, which is substantially above the average Beijing occupancy rate of 82.2% - that’s why I always believe in paying a premium for good management.

According to the latest report, Gateway Plaza’s passing rent is approximately RMB 347.2.

Hence, in my calculation, I will assume occupancy stays at 90% and passing rent dips by 3% for the next 2 years before recovering at 2% from 2025 onwards with the same level of occupancy.

Sum of all Present Value= S$971,259,000
No. of Units in issue= 3,434,336,938
Per share value (Properties in China- Gateway Plaza)= $971,259,000/3,434,336,938= $0.2828

3. Property in Hong Kong - Festival Walk

Festival Walk

I think the worst is behind this heartland mall with support for HK protests dwindling after the National Security law was introduced last year. Moreover, the Covid-19 cases have been well under control with only 1.29 community cases over seven days’ moving average (as of 26th April), to the extent that Hong Kong is willing to establish a travel bubble with Singapore.

As Festival Walk is a suburban mall which serves the community of Kowloon Tong (equivalent to Singapore’s Northpoint City, Waterway Point, Causeway Point), it is less sensitive to tourism and the economy. The recent drop in retail sales leading to negative rental reversion, in my view, was purely caused by social distancing measures, dine-in bans, and the closure of the ice rink during the third wave of Covid-19.

Eventually, when the majority of Hong Kongers gets vaccinated and virus waves recede, the gradual easing of social distancing measures will bring about footfall recovery, which will lead to improvement in NPI.

I foresee a gradual recovery in Festival Walk as Hong Kong increases group size gatherings and eases social distancing rules amid the drop in community cases. So I will assume a 5% growth in NPI till 2025, followed by modest 2% growth.

Sum of all Present Value= S$2,795,428
No. of Units in issue= 3,434,336,938
Per share value (Property in Hong Kong- Festival Walk)= $2,795,428,000/3,434,336,938= $0.8140

3. Property in Seoul - The Pinnacle Gangnam

The Pinnacle Gangnam 

During Sept last year, management announced the acquisition of The Pinnacle Gangnam for $528 million. Under the agreement, MNACT holds 50% interest, and Mapletree Investments own 49.95%. The remaining 0.05% belongs to a third party investor.

When the news broke, I saw analysts commenting that the acquisition was not attractive because of potential downward revision of rents when the lease expires, failing to significantly improve NPI. In my opinion, these analysts are completely missing the point. I believe the acquisition was intended to reduce concentration risks by diversifying the overall NPI. It’s like an investor constructing a diversified dividend portfolio by adding different dividend stocks to reduce unsystematic risk rather than focus on improving overall dividend yields.

Personally, I like this acquisition because of two reasons:

1)      Yield Accretive

2)      Management has a skin in the game.

Yield Accretive

When a REIT like MNACT got beaten down, its dividend yield increased, and it would be harder to acquire yield accretive properties. Yet this acquisition defied all odds and the purchase of Gangnam Property helped to improve overall distribution per unit, though it’s pretty insignificant; after all, it only forms 3% of the total portfolio (refer to calculation below). The higher vacancy may be a worrying sign to many investors, but I think it’s a blessing in disguise as it allows management to renew the lease at higher rental rates.

I wrote to management a few days ago on Gangnam property and here is the management’s reply:

As mentioned in our latest FY20/21 results announcement, for the Seoul office market, demand from the IT, gaming, biotech and pharmaceutical industries is expected to grow moving forward and The Pinnacle Gangnam is expected to provide a growing earnings stream to MNACT.

The important keyword here is ‘growing earnings stream’. Although she didn’t disclose individual lease tenants, I am confident in the sponsor’s ability to renew or lease out tenants at a higher rental rate.

The chart below shows the rental has been steadily increasing and this website shows that Gangnam is up for rent for ₩2810/sqft/month. After some calculation, the rental is about 99,888 as projected.

1 Pyeong :35.5832 Sqft

Asking rent=  2810*35.5832 /Pyeong/month =  99,988.792 Pyeong/month, which is in line with projection shown below.

Management has a skin in the game

Secondly, the sponsor continues to hold almost half of the property in Seoul and that is great. Management can talk whatever they want but I think the best vote of confidence is putting one's own money on the line just like outside investors.


Its five months gross revenue is $4.8mil and annualizing would be $11.52mil.

Similarly its five months gross NPI is $3.8mil , and yearly NPI is expected to be $9.12mil.

NPI yield= 79.17%

Contribution to NPI= 9.12/(Total NPI for HK & China & Japan+9.12)*100%

9.12/(6292.040+9.12)*100%= 3.029%


As management is optimistic on this one and I share the same sentiments, I would assume a perpetual increment of 1% in rental throughout.

Sum of all Present Value= S$118,399,000
No. of Units in issue= 3,434,336,938
Per share value (Properties in Korea- Gangnam)= $118,399,000/3,434,336,938= $0.03448

Summing Up and Closing Thoughts

Potential upside= ($1.5355-$1.09)/$1.09 x 100%= 29.01% (closing price as of 29th April 2021)

Despite management's attempt to diversify its earnings away from Festival Walk, the HK mall still forms more than 50% of the total intrinsic value of MNACT. Therefore, I believe the price movement will continue strongly correlate with the retail prospects in HK. The past few days have seen very few or zero community cases and a recovery is on the horizon. With that being said, MNACT is set to see brighter days ahead.

Thank you so much for spending time to read my blog and I really appreciate you. If you enjoyed reading my blog, hope you can support me by liking my Facebook page here or share my post. Currently, I do not earn any fees through any affiliate programme or sponsor. If you have any queries, feel free to post them and I am happy to take questions! :)

What are your thoughts on MNACT? Do you think that it is still worth buying at current levels?

My Past Transactions

Sunday, April 18, 2021

Portfolio Updates (April 2021)

Nasdaq has recovered from its bloodshed months in February and March; however, the rising tide to lift all boats didn’t play out too well. While most of the large cap tech stocks such as Apple and NVIDIA have recovered in my Growth Portfolio, the mid cap stocks, which have no bottom-line, continue to underperform. 

There haven’t been any new additions in my portfolio other than shares of the ARK Genomic Revolution ETF (ARKG). Cathie Woods, the brain behind Ark Invest, rose to fame last year after predicting Tesla would be a multibagger. The resulting 695% returns in Tesla’s shares made Woods into an investment celebrity overnight, and followers have intently taken her market predictions as gospel. In one of her interviews, she claimed that the next Tesla could come from the genome sector, which exploded into an overnight sensation after her novice followers jumped onto the gene-editing bandwagon.

However, when these stock prices ran ahead of fundamentals, the feeding frenzy died down. Following an outflow of funds towards value stocks, I took the opportunity to reevaluate the prospects of gene-editing companies, and purchased shares of ARKG. After all, the best time to buy a stock is when there is blood on the streets.

For my growth portfolio, I have increased my position in Teladoc, Opendoor, Lemonade, Palantir, Qualcomm, Ganfeng Lithium and Tesla. As for my dividend portfolio, I divested 589 shares of OCBC +27.69%. If local bank shares i.e. DBS, OCBC and UOB continue their uptrend, I will take some money off the table by selling on strength.

As there hasn’t been much changes in these short two weeks so I will update my portfolio value and share my thoughts on Qualcomm.


I like Qualcomm’s business model because I believe the company will be one of the biggest beneficiaries of the 5G rollout; therefore, I will progressively add more shares for Qualcomm to become one of my top holdings. Qualcomm stands for Quality Communications, and it derives revenue from three main segments: Qualcomm CDMA Technologies, Qualcomm Technology Licensing and Qualcomm Strategic Initiatives.

Qualcomm Strategic Initiatives (QSI)

QSI invests in young companies which complements its CDMA products and services. It's the smallest revenue segment and only contributes less than 0.2% of overall sales.

Qualcomm CDMA Technologies

Qualcomm CDMA Technologies concentrates their sales in processors such as the System of Chip (SoC) Snapdragon series and X series modem. With the exception of Apple, Qualcomm dominates the smartphone SoC market as its technology has been advancing by leaps and bounds.

Qualcomm hopes to get lucky with Qualcomm Snapdragon 888 5G

Qualcomm Technology Licensing

Qualcomm’s technology licensing segment grants the right to use its intellectual property portfolio, and managed to get Apple on its knees by charging the smartphone company $7.50 USD per iPhone sold. It was notoriously known for its "no-license, no-chips" policy. In 2019, Apple wanted to use Qualcomm chips in iPhone XS, iPhone XS Max, and XR but in light of a legal battle between Apple and Qualcomm, the latter decided against selling chips to Apple. The royalty dispute ended with Apple paying an estimated $5 to $6 billion in exchange for Qualcomm to supply chips to Apple for the next six years. Although Apple acquired Intel’s smartphone business to build its own cellular modem, it will take years before it can begin to catch up with Qualcomm’s modem technology.

Apple's iPhone 13 is reportedly using Qualcomm's Snapdragon X60 5G modem

In the past, consumers have not felt much of an impact in the transition between 2G to 3G beyond simple handset upgrades; however, 5G is a disruptive force and revolutionary game changer that is the key behind remote surgeries, full self-driving cars, and other futuristic endeavours that require the low-latency network 5G hopes to unlock. You name it, they’ve got it  However, the success of 5G much depends on Spectrum Access, and in country like US is still facing a lack of 5G infrastructure due to high costs and spectrum shortage. Let’s face it, we all know that Huawei is winning the 5G race. So we are likely to see China being the world’s no. 1 in 5G gear rollout. That probably explains why Elon Musk is investing his automobile operations in Shanghai. 

(1) Dividend Portfolio

(2) Growth Portfolio

Stock Portfolio: $469,359

Cash at Hand: $91,870

Total Portfolio value= $561,229

Goals for 2030- 14.36% achieved

Goals for 2022- 96.12% achieved

Portfolio 1 Net Worth (Dividend+ Growth): $469,359

Portfolio 2 Net Worth: $192,197

Cash at Hand: $91,870

Net Worth (Cash + Equity): $753,426

On a side note, today happens to be the last day of tax filing for Singapore tax resident, so please remember to file your tax if you haven't done so!

How did your portfolio perform in April?

Thank you so much for spending time to read my blog and I really appreciate you. If you enjoyed reading my blog, hope you can support me by liking my Facebook page here or share my post. Currently, I do not earn any fees through any affiliate programme or sponsor. If you have any queries, feel free to post them and I am happy to take questions! :)