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Wednesday, January 15, 2020

Mapletree North Asia Commercial Trust MNACT

MNACT's share price was pummelled after months of HK protests, which saw parts of Festival Walk (MNACT's largest rent generator) set on fire and vandalized.  

Some quick notes:

Festival walk contributed 62% of total Net Property Income for MNACT based on their 1H FY2019/20 results.

Festival Walk has been closed since 13 Nov. 

Festival Walk is slated to reopen 16 Jan 2020, prior to Lunar New Year.  Assuming rent collection will only resume after 16 Jan, the expected loss of rental income would be for about two months plus a bit. 

The Manager will rely on external borrowings to partially top up FW's distributable income while waiting for insurance to pay out (assuming there would be any).  This top up is expected to be about 40% of the lost rental income. 

Hence, it is inevitable that distributable income for 2H FY19/20 will drop. 

Share price of MNACT has dropped from a peak of $1.44 (July 2019) to $1.12 (20 December 2019) representing a 22% correction.  

A 22% correction seems unjustified. Even if the loss in rental income could not be recovered via insurance, whether partially or entirely, the expected drop in NPI is only around 10% (2 months/12 months multiplied by 62% of NPI). All things unchanged, a $1.30 share price should have represented a "safe entry" point. 

Alas the market is unpredictable, and MNACT sunk as low as $1.12. 

Sadly, I did not catch the bottom, but I did acquire around 50k worth of MNACT units at $1.17/unit around November 2019.  

I have faith in the quality of the Mapletree brand and management. Their recent diversification into Japan is a small but long overdue move to reduce concentration risk in HK.  

But more importantly, I found the correction overdone, and it was a good opportunity to buy a well managed REIT with quality assets and at a reasonable price. 

Happy Lunar New Year in advance my fellow FI brethren. 

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