Mapletree Greater China Commercial Trust - CIMB Research 2016-04-28: Continues to deliver

MAPLETREE GREATER CHINACOMM TRUST RW0U.SI

Mapletree Greater China Commercial Trust - Continues to deliver

4Q DPU slightly ahead, supported by organic improvement and favourable forex.
FW still enjoying strong rental uplift despite slowing tenant sales and shopper traffic, thanks to its strong and established positioning.
Office passing rents moving closer to spot rents, future renewal growth to be muted.

MAGIC delivered 4FY16 revenue and NPI, which rose 15.2%/17.3% yoy to S$87.8m/S$73m, underpinned contributions from Sandhill Plaza (SP), organic improvements at Festival Walk (FW) and Gateway Plaza (GP) and favourable forex impact.
4Q DPU came in at 1.92 Scts (+10.4%), bringing FY16 DPU to 7.25 Scts.
Post annual revaluation, book NAV improved 3.4% to S$1.24/unit.

Despite a yoy dip in tenants’ sales and shopper traffic in 4Q, MAGIC continued to benefit from positive rental reversions of 37% for its retail leases in FW on full occupancy.
FW has 20.8% and 20.2% of retail leases due to be re-contracted in FY17-18. We anticipate these renewals to be more moderate, in tandem with the challenging HK retail market, but remain positive, given FW’s deeply entrenched position.
Current occupancy cost of 17-18% is still relatively healthy, in our view.

MAGIC achieved a 25% positive reversion for leases expiring at GP in FY16.
An estimated 6.4% and 13% of its office leases are expected to expire between FY17-18, largely at GP.
With average passing rent at the property trending close to spot rents, we anticipate rental uplift on renewals to be relatively muted going forward.
Nonetheless, the trust has recommitted a major tenant lease for a further five years, and this has extended WALE at GP to 3.9 years, thus improving portfolio income visibility.

In 4QFY16, MAGIC refinanced HK$1,875m of debt and extended its debt maturity profile to 3.01 years. This resulted in overall interest cost rising to 2.83%. However, gearing has declined to 39.5% on higher AUM post revaluation.
We have tweaked our FY17-18 estimates to reflect the slight expansion interest cost.
With 77% of its debt cost hedged and 18% of its total debt to be rolled over in FY17, we anticipate overall interest expense to hold relatively steady.

We continue to like MAGIC for its resilient portfolio, underpinned by FW.
In addition, we think there could be scope for new acquisitions, with present gearing below 40%. More than 70% of 1HFY17 distribution income has been hedged, ensuring income stability.
We roll forward our forecasts to FY17 and introduce our FY19 projections.
We have adjusted our DDM-based target price to S$1.12. MAGIC offers investors 21% total return potential.

LOCK Mun Yee CIMB Securities | YEO Zhi Bin CIMB Securities | http://research.itradecimb.com/ 2016-04-28

CIMB Securities SGX Stock Analyst Report ADD Maintain ADD 1.12 Up 1.10