Mapletree Greater China Commercial Trust - OCBC Investment 2017-01-31: Dip in DPU in-line with expectations

Mapletree Greater China Commercial Trust - OCBC Investment 2017-01-31: Dip in DPU in-line with expectations MAPLETREE GREATER CHINACOMM TR RW0U.SI

Mapletree Greater China Commercial Trust - Dip in DPU in-line with expectations

  • 3QFY17 DPU fell 4.1% YoY.
  • Improvement in GP occupancy.
  • Positive rental reversions of 7%-16%.

3QFY17 results within our expectations 

  • Mapletree Greater China Commercial Trust (MGCCT) reported a 4.1% YoY dip in its 3QFY17 DPU to 1.778 S cents on the back of a slight 0.5% decline in gross revenue to S$87.8m and 1.5% fall in net property income to S$71.4m.
  • However, results were within our expectations.
  • The lower gross revenue can be attributed mainly to the depreciation of the RMB against SGD and weaker revenue from Gateway Plaza (GP) due to the implementation of VAT (effective May 2016). This was partially offset by higher rental income from Festival Walk (FW)
  • Given the change in property tax basis (effective July 2016) in Beijing, an additional property tax of S$1.7m was incurred at GP in 3QFY17. 
  • For 9MFY17, MGCCT’s gross revenue grew 2.8% to S$255.9m and formed 74.5% of our full-year forecast. 
  • DPU of 5.378 S cents represented a mild increase of 0.7% and constituted 75.8% of our FY17 projection.

Portfolio metrics largely healthy 

  • Operationally, FW and Sandhill Plaza (SP) were both fully occupied, while GP saw a healthy boost in its occupancy rate to 96.9% (+6.4 ppt QoQ), as at 31 Dec 2016. 
  • Management continued to secure positive rental uplifts of 14% at FW (retail) and 7% at FW (office), while rental reversions of 10% and 16% were achieved for GP and SP, respectively, as at 31 Dec 2016. However, given the malaise surrounding Hong Kong’s retail scene, FW registered an approximate 9.4% YoY decline in tenant sales in 3QFY17, despite a 2.7% recovery in footfall during the same period.

Maintain BUY 

  • In terms of financial position, MGCCT’s gearing ratio crept up to 40.5%, versus 39.9% as at 30 Sep 2016. However, average all-in cost of debt was lowered QoQ from 2.89% to 2.78% as a result of better refinancing terms from new bank facilities. 
  • 85% of its total debt has been fixed, while 87% of its FY17 distributable income (comprising both RMB and HKD) has been hedged into SGD. 
  • Given a steeper yield curve environment and MGCCT’s higher aggregate leverage ratio, we raise our cost of equity assumption from 8.2% to 8.5%. Consequently, our fair value is lowered from S$1.15 to S$1.08.
  • Maintain BUY.

Andy Wong Teck Ching CFA OCBC Investment | http://www.ocbcresearch.com/ 2017-01-31
OCBC Investment SGX Stock Analyst Report BUY Maintain BUY 1.08 Down 1.150