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

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. 
  • Higher interest expense on longer expiry profile. 
  • We maintain our Add rating with a slightly higher target price of S$1.12. 

■ 4Q DPU slightly above our expectations 

  • 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. 

■ FW to remain resilient 

  • 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. 

■ Extended office earnings visibility 

  • 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. 

■ Pushing out debt expiry profile 

  • 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. 

■ Maintain Add 

  • 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