frugal

An undervalued S-REIT (RW0U)

Mapletree North Asia Commercial Trust‘s (SGX: RW0U) price is $1.01 right now. At the time of writing, the price is still recovering from the COVID-19 scare as well as the Hong Kong riots. At this price, the dividend yield is 7.05%, which is pretty high. However, let us take a look whether this is a good buy right now.

Property Value

First of all, this REIT owns property in the North Asia region, which includes China, Hong Kong and Japan.

From their FY18/19 Annual Report, their properties are valued at S$7.6 billion. Its value has been increasing year-on-year, which is a sign of a good management.

After all, their sponsor is Mapletree. One of Singapore’s stronger REIT managers. Other than RW0U, they also have 3 other famous and strong REITs, otherwise known as Mapletree Logistics Trust (MLT), Mapletree Industrial Trust (MIT) and Mapletree Commercial Trust (MCT).

Since the stock market rally, these 3 REITs have been performing very well.

Occupancy Rate

This REIT also manages to boast a high occupancy rate of 99.6%. This is a good indicator that there will still be relevant cash flow coming into the REIT once this COVID situation blows over and the Hong Kong riots die down.

Gross Revenue and Net Property Income

They have experienced a consistent year-on-year growth in revenue as well as net property income. Moreover, the Compound Annual Growth Rate (CAGR) has been hovering around 9-10% which is a pretty good margin.

Distribution Per Unit

Their DPU has been increasing every year. However, there have been some dips in certain quarters. This is due to the combined effect of COVID as well as the Hong Kong riots. The riots have caused some shops to close and be unable to pay their rent.

Although this is affecting its largest property, Festival Walk (Hong Kong), their risk is still slightly diversified with their properties in China as well as incoming acquisitions from Japan.

In addition, the Festival Walk is a huge mall located in a prime spot in Hong Kong. Its combination of high quality tenants from its office sector as well as solid retail outlets gives me confidence that this growth will only be temporarily stunted by the riots.

Property Yield

Currently, RW0U has a Net Property Income of S$329 million and its investment properties are worth S$7609.5. This means that it has a property yield of 4.3%.

Ideally, this number should be higher, but I am confident that the property yield would increase as time passes because the prime location of Festival Walk as well as the other quality properties that Mapletree own will result in sufficient justification of rising rental prices.

Gearing Ratio

Currently, RW0U has a grearing ratio of 39.3%, significantly lower than MAS’s regulated 50%. Even before MAS raised the gearing ratio limit to 50%, it still sits comfortably below 45%.

Cashflow should not be a major problem for this REIT.

General Prospects

Generally, RW0U saw positive rental reversions for FY18/19.

Outside of the Hong Kong protests which is affecting its price in the short-term, I believe that consumption sentiments will improve. Along with improving sentiments from the COVID-19 economic recovery, this REIT could pick up as Hong Kong remains a major financial hub for both China and Asia.

In addition, RW0U has been diligently diversifying its portfolio, acquiring office properties such as Greater Tokyo, Japan. This is a good sign of positive cash flow and a diligent management.

Acceptable Price-to-Book Ratio

Currently, RW0U continues to boast a great valuation, with a PB ratio of 0.694.

This is one of the many undervalued REITs right now. Even after some market recovery, I personally believe it is a good buy. The PB ratio for the other Mapletree REITS stands above 1.235. I believe in strong management. Being a more optimistic investor, I choose to take lesser weightage about the Hong Kong riots affecting business sentiments.

Personal Take

With so many things going for this REIT and my personal bullish outlook about this REIT, this REIT is indeed part of my portfolio, with a weightage of about 10%.

You can read Seedly’s review (I really like Sudhan’s REIT analysis) here.

Disclaimer: Do your Own Research

My content is intended to be used and must be used for informational purposes only. It is very important to do your own analysis before making any investment based on your own personal circumstances. You should take independent financial advice from a professional in connection with, or independently research and verify, any information that you find on our Website and wish to rely upon, whether for the purpose of making an investment decision or otherwise.

3 Comments

  • Vince

    When I read your title, I thought u mean “over” valued. Now I know it actually mean highly valued by you. Haha. This is indeed a fundamental good REIT.

Leave a Reply

Your email address will not be published. Required fields are marked *