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).

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.

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.

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.

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.

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.

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

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