Mapletree Greater China Commercial Trust - OCBC Investment 2016-08-01: Robust start but some moderation seen

Mapletree Greater China Commercial Trust - OCBC Investment 2016-08-01: Robust start but some moderation seen MAPLETREE GREATER CHINACOMM TR RW06.SI 

Mapletree Greater China Commercial Trust: Robust start but some moderation seen

  • 1QFY17 DPU grew 9.1% YoY.
  • Positive rental reversions of 6%-28%.
  • Maintain BUY with higher FV.

1QFY17 results within our expectations

  • Mapletree Greater China Commercial Trust (MGCCT) reported a resilient set of 1QFY17 results which met our expectations. 
  • Gross revenue and NPI grew double-digits at 11.9% and 11.2% to S$85.0m and S$69.4m on a YoY basis, respectively, with both figures forming 24.1% of our FY17 forecasts. Growth was underpinned by the additional contribution from Sandhill Plaza (SP), which was acquired on 17 Jun 2015, coupled with higher revenue from Festival Walk (FW). 
  • DPU came in at 1.85 S cents, representing YoY growth of 9.1%. This accounted for 25.1% of our full-year projection.

Largely resilient, but some moderation in operating metrics

  • During the quarter, management secured positive rental uplifts of 13% at FW (retail) and 11% at FW (office), while rental reversions of 6% and 28% were achieved for Gateway Plaza (GP) and SP, respectively. 
  • Although this was a fairly significant moderation from the robust rental reversions which MGCCT is used to delivering, we note that this scenario had already been flagged out by management in the previous quarters. 
  • Overall portfolio occupancy stood at 97.8%, as at 30 Jun 2016, which was relatively stable versus the 98.6% level at end 4QFY16. Both FW and SP were fully leased, but GP’s vacancy rate increased slightly from 3.2% to 5%. 
  • As part of MGGCT’s proactive lease management, 45.0% of its expired/expiring leases (by lettable area) in FY17 have been renewed or re-let. FW’s tenant sales and footfall dipped 12.7% and 12.5% YoY to HK$1.1b and 8.6m, respectively, in 1QFY17. This was largely due to renovations by its new cinema operator tenant till Jun this year. We expect a recovery for these figures at FW from 2QFY17.

Maintain BUY

  • In terms of risk management, MGCCT has hedged 80% of its borrowings, while 62% of its estimated distributable income (comprising both HKD and RMB) for FY17 has been hedged into SGD. 
  • We reiterate our BUY rating on MGCCT, but bump up our fair value estimate from S$1.09 to S$1.18 as we factor in a lower cost of equity assumption of 8.2% (previously 8.7%) in our model. 
  • The stock is currently trading at FY17 distribution yield of 6.9% and P/B ratio of 0.9x.

Wong Teck Ching Andy CFA OCBC Securities | http://www.ocbcresearch.com/ 2016-08-01
OCBC Securities SGX Stock Analyst Report BUY Maintain BUY 1.18 Up 1.09