Mapletree Greater China Commercial Trust - CIMB Research 2016-02-02: Still showing resilience

Mapletree Greater China Commercial Trust - CIMB Research 2016-02-02: Still showing resilience MAPLETREE GREATER CHINACOMM TRUST RW0U.SI 

Mapletree Greater China Commercial Trust - Still showing resilience 

  • DPU uplift came from better performance across all its assets. 
  • FW and GP enjoyed positive rental reversions of 42% and 29%, respectively, with sustained high occupancy. 
  • We expect moderated but still positive renewals in FY17. 
  • Project higher funding cost with 30% of loans maturing in FY17. 
  • Maintain Add with lower DDM-based target price of S$1.10. 

DPU growth led by improvement across the board 

  • MAGIC reported 3QFY16 DPU of 1.85 Scts, up 11.6% yoy and largely in line with expectations. This was supported by a 20% rise in revenue with contributions from Sandhill Plaza (SP) and organic growth from Festival Walk (FW) and Gateway Plaza (GP), an improvement in NPI margins and stronger HK$ and Rmb against the S$. 
  • This was partly offset by higher interest expense from the acquisition of SP. 

FW and GP continue to enjoy organic rental expansion 

  • Portfolio occupancy was sustained at a high 98.7%. 
  • Even though tenant sales saw a 6.7% dip in 3Q, FW continued to enjoy positive rental reversion of 42% while GP saw a 29% uplift from its lease renewals. 
  • New tenants include Fresh, Geox, Nike Basketball, Kate Spade and dining concepts such as An Nam and Senryo at FW, while at GP, the take-up came from the education and professional services sectors. 
  • With a remaining 4.5% of portfolio leases to be re-contracted in 4Q, we expect earnings to remain stable. 

Moderate forward rental reversion uplift 

  • MAGIC has 28.5% and 36.2% of its gross rental income expiring in FY17 and FY18 respectively. 
  • With a more competitive leasing environment and weaker economic growth, we expect the rental uplift to be more moderate going forward and have imputed low - to mid-single-digit hikes into our present estimates. 

Higher funding cost expected 

  • MAGIC’s gearing ratio stands at 41.4% as at 3QFY16, on the higher end compared to its peers, while the average all-in cost of debt rose slightly to 2.67%. 
  • With a more limited debt headroom, we expect forward DPU expansion to come mainly from organic growth. 
  • Meanwhile, an estimated 30% of its loans will expire in FY17 and we have imputed a slight increase in funding cost, given the present higher interest rate environment. 

Maintain Add 

  • We have trimmed our FY16-18 DPU numbers marginally and lowered our target price by 8% to S$1.10 as we adopt a higher cost of equity of 9.7%. 
  • MAGIC continues to offer investors a stable earnings outlook backed by the resilient performance of FW. 
  • To mitigate forex volatility, about 91% of its FY16 distributable income has been hedged and the trust intends to hedge its distributable income for up to four quarters forward, on a rolling basis. 
  • MAGIC offers investors FY16-17 DPU yield of 8.7-9%.

LOCK Mun Yee CIMB Securities | YEO Zhi Bin CIMB Securities | http://research.itradecimb.com/ 2016-02-02
CIMB Securities SGX Stock Analyst Report ADD Maintain ADD 1.10 Down 1.20