Mapletree North Asia Commercial Trust to buy two Japan office properties for $483m

It seeks to diversify away from the damaged Festival Walk in Hong Kong.

Mapletree North Asia Commercial Trust (MNACT) has agreed to buy 98.47% interest in two freehold, multi-tenanted office properties in Japan, from its sponsor Mapletree Investments (MIPL), for $482.5m (about JPY37.9b), according to a press release.

This was made to reduce its income and asset concentration in Festival Walk in Hong Kong, which was closed since 13 November after sustaining extensive damage in the midst of ongoing social unrest in the city. According to a report by DBS Group Research, the mall contributes to almost 65% of MNACT’s quarterly income.

To reduce its impact on the distributable income, the firm will implement a distribution top-up from Q3 FY19-20 to Q1 FY20-21 amounting to about 40% of the Festival Walk’s retail revenue, until the loss of revenue is recovered from insurance claims.

The mall is currently undergoing repair works, including repairs and/or replacements of glass entrances, glass curtain walls, portion of the skylight, escalators, lifts, and glass balustrades along the common areas. It is projected to reopen in Q1 2020.

As at 30 September, mBay Point Makuhari Building (MBP) contributes 87.2% of the GRI whilst Omori Prime Building (OPB) takes up the remaining 12.8%. Upon acquisitions, the property value of the firm’s portfolio is expected to grow 6.3% to $8.2b. Japan’s contribution by net property income (NPI) will also rise from 11.6% to 17.0%.

The manager plans to finance the acquisition through issuance of units to the sponsor’s nominee, debt financing, and/or internal cash resources.The number of units to be issued to the nominee will be based on the aggregate agreed property value and the issue price of the units.

MNACT’s manager has also voluntarily waived its acquisition fee entitlement, which would have been at the rate of 0.75% of 98.47% of the aggregate agreed property value.

According to the DBS report, the properties can generate higher returns in the medium term when it fills its vacancies. Although they offer an initial yield of 4.5%, they were noted to be under-rented assets.