I took up a position in Mapletree North Asia Commercial Trust near the end of last month at $1.16 per share, thinking that the Pro-democracy win at the polls was as positive sign that there will soon be a turn around in the political situation in Hong Kong.
My investment thesis is to buy for long-term gain and dividend payouts, and I will hold this position as long as the stock's fundamentals are intact. Based on my research, I noted the following points in favor of MNACT:
- Positive trend of increasing NPI, profit and revenue from FY18-19.
- Acceptable debt leverage at 37.1%
- Strong sponsor with pipeline of stocks
- Good track record excluding the impact of Hong Kong riots
Key assumptions
- Muted impact of Hong Kong riots on revenue even though the mall will be closed because
- Festival Walk derives most of its rental income from base rent. Turnover rent - which is pegged to retail sales - contributed only 3 per cent of the mall's revenue for the fiscal year ended March 31, 2019. (ST article)
- Loss in rental is covered by insurance. However, if the instability goes on too long it may affect long-term rental reversion/occupancy
- I expect Festival Walk to continue to be a popular shopping mall when it opens
- I also expect the REIT manager to uphold their promise to further diversify their portfolio and reduce income/geographical concentration
If I had been more patient...
I tried to buy the stock at $1.15 the day after the poll results were out, but there were hardly any sell orders. Between 25-26 Nov, the stock was a "strong" buy. The trading volume was not even close to the trading volume averages but I saw it as a clear sign that investors saw value in this stock. I had to put in a new order the next day to get it at $1.16.
Its been about 2 weeks since then and the share price has remained relatively flat, which is not necessarily a bad thing, although I would have preferred if there was more movement upwards 😅. Looking at the current price at $1.14, I could have waited to enter at a lower price point given the uncertainties around Festival Walk's opening date and insurance payout (back in November), but I didn't want to risk losing out if the share price rallied haha.
I'll take this as a lesson to wait for more information before buying. In any case, the price seems to be holding support at $1.14 suggesting that forecasted downsides have already been priced in. I am also bullish on the stock's long-term prospects so I will stay invested despite the recent drop in share price.
Acquisition of office buildings in Japan
The news about their acquisition of two more office buildings in Japan has been met with generally neutral reactions, likely because the portfolio is still very strongly weighted towards Festival Walk even after accounting for these two additional properties. A a shareholder, I would want MNACT to diversify their portfolio even further to reduce their income reliance on Festival Walk.
I guess we'll have to wait and see how things pan out! Based on the current state of things in Hong Kong, I'm not harboring any hopes for significant price increase till the Q2 2020 at the very least. On the bright side, dividend payout won't be too greatly affected since there will be top-ups for the next three quarters based on 40% of Festival Walk's retail revenue.