Mapletree Greater China Commercial Trust - OCBC Investment 2016-10-28: Dragged By Gateway Plaza

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MAPLETREE GREATER CHINACOMM TR RW0U.SI

Mapletree Greater China Commercial Trust - Dragged By Gateway Plaza

• 2QFY17 DPU slipped 2.4% YoY.
• Change in Beijing’s property tax regulation.
• Positive rental reversions of 7%-23%.

2QFY17 results within our expectations 

• Mapletree Greater China Commercial Trust (MGCCT) reported a 2.4% YoY fall in its 2QFY17 DPU to 1.765 S cents on the back of a 1.9% decline in gross revenue to S$83.1m and 3.2% dip in net property income to S$67.3m. However, results were within our expectations.
• The lower gross revenue can be largely attributed to the depreciation of HKD and RMB against SGD and lower occupancy at Gateway Plaza (GP), but partially offset by higher rental income from Festival Walk (FW). 
• An additional property tax of S$1.5m was incurred at GP because of the change in property tax basis imposed by Beijing which came into effect in Jul 2016. 
• For 1HFY17, MGCCT’s gross revenue grew 4.6% to S$168.0m and formed 47.7% of our full-year forecast. 
• DPU of 3.61 S cents represented an increase of 3.2% and accounted for 49.0% of our FY17 projection.

Positive rental reversions, but occupancy at GP fell 

• Operationally, occupancy at FW and Sandhill Plaza (SP) remained firm at 100% and 99.6%, respectively, but GP’s vacancy rate increased from 5% (as at 30 Jun 2016) to 9.5%. This was attributed to a nonrenewal of a tenant which occupied two floors. MGCCT has since found a replacement, but the new lease was committed after 30 Sep and hence not reflected in 2QFY17’s occupancy figure. 
• Management secured positive rental uplifts of 15% at FW (retail) and 7% at FW (office), while rental reversions of 8% and 23% were achieved for GP and SP, respectively, as at 30 Sep 2016. 
• Footfall was flat YoY in 2QFY17 at 10.4m, while tenant sales dipped ~8% YoY to HK$1.18b. However, this was an improvement compared to the 12.7% decline in 1QFY17, as MGGCT’s new cinema operator opened in Jul.

Maintain BUY but with lower FV 

• We trim our FY17 and FY18 DPU forecasts by 3.6% and 4.3%, respectively, as we incorporate lower occupancy and NPI margin assumptions at GP, coupled with a higher SGDCNY rate in our model.
• Consequently, our DDM-derived fair value estimate is reduced from S$1.18 to S$1.15. However, we maintain our BUY rating on MGCCT.

Wong Teck Ching Andy CFA OCBC Investment | http://www.ocbcresearch.com/ 2016-10-28

OCBC Investment SGX Stock Analyst Report BUY Maintain BUY 1.15 Down 1.180