Mapletree Greater China Commercial Trust - CIMB Research 2017-01-27: No surprises

Mapletree Greater China Commercial Trust - CIMB Research 2017-01-27: No surprises MAPLETREE GREATER CHINACOMM TR RW0U.SI

Mapletree Greater China Commercial Trust - No surprises

  • 3Q/9MFY17 DPU broadly in line, making up 24%/72% of our FY17 DPU forecasts.
  • Festival Walk (FW) continues to enjoy positive rental reversion, recording 14% in 3Q.
  • Gateway Plaza (GW) impacted by higher taxes and VAT, partly offset by better performance at Sandhill Plaza (SP).
  • Debt maturity extended to 3.93 years; 87% of FY17 distribution income hedged.
  • Maintain Add with an unchanged target price of S$1.13.

3QFY17 results highlights 

  • MAGIC reported 3QFY17 gross revenue and NPI dipped 0.5% and 1.5% yoy, respectively, to S$87.8m and S$71.4m due to the depreciation of the Rmb and implementation of VAT in China. This was partly offset by higher rental income from Festival Walk (FW). 
  • 3QFY17 DPU was 1.778 Scts, down 4% yoy, after taking into account distribution adjustments. 
  • For 9MFY17, DPU of 5.378 Scts made up 72% of our full-year forecast, broadly in line with expectations.

FW continued to enjoy positive rental reversions 

  • Portfolio occupancy rose to 98.6% as at end-3Q, with Festival Walk remaining fully occupied and take-up at Gateway Plaza (GW) increasing to 96.9%. 
  • FW enjoyed a 5% and 6% increase in gross revenue and NPI, respectively, for 9MFY17, thanks to 14% positive rental reversion despite lower shopper footfall and tenant sales. To date, the trust has renewed c.96% of its FY17 retail leases and has a remaining 5% and 21.9% of gross rental income to be renewed in 4QFY17 and FY18, respectively.

Higher take-up at GW but VAT and property taxes erode earnings 

  • Performance at GW was hit by the implementation of VAT and higher property tax, cutting 9M gross revenue and NPI 11% and 19% yoy, respectively, to S$55m and S$45m. Nonetheless, occupancy at GW rose to 96.9% as at end-3Q, with rents renewed at 10% over previous levels. Only 0.9% of income is to be renewed in 4QFY17. 
  • MAGIC also reduced its FY18 expiries of 12.1% by renewing the lease of one of its largest tenants (8% of FY18 expiries) for 5 more years, providing longer-term earnings visibility.

SP saw a 16% rental uplift for renewals, small 2.9% expiries in FY18 

  • Sandhill Plaza (SP) continues to perform well, with a 16% positive rental uplift for its lease expiries. With a marginal 2.9% of leases due to be renewed in FY18, we expect SP to continue to deliver stable income to the trust.

Debt maturity extended to 3.93 years 

  • Its balance sheet remains robust. Although gearing of 40.5% is on the higher end compared to its S-REIT peers, MAGIC has completed its debt refinancing for FY17, extended its debt maturity to 3.93 years and lowered its average all-in cost of debt to 2.78%. 
  • An estimated 85% of its debt cost has been hedged.

Maintain Add 

  • We leave our FY17-19 DPU estimates unchanged and maintain our DDM-based target price of S$1.13. 
  • We continue to like MAGIC for its largely resilient portfolio, backed by FW, which makes up 71% of revenue. About 87% of its FY17 distributable income has been hedged into S$. 
  • Downside risks include a weaker-than-expected Beijing office market, which could affect earnings and capital values of this property segment.

LOCK Mun Yee CIMB Research | YEO Zhi Bin CIMB Research | http://research.itradecimb.com/ 2017-01-27
CIMB Research SGX Stock Analyst Report ADD Maintain ADD 1.130 Same 1.130