Mapletree Greater China Commercial Trust - CIMB Research 2017-07-31: Another Good Quarter

MAPLETREE GREATER CHINACOMM TR RW0U.SI

Mapletree Greater China Commercial Trust - Another Good Quarter

MAGIC’s 1QFY3/18 DPU was within expectations, making up 25.2% of our FY18 forecast and in line with consensus.
The good performance was underpinned by positive rental reversions across its properties.
Active leasing activity in 1QFY3/18 of 80% of Festival Walk, 70% of Gateway Plaza and 54% of Sandhill Plaza lease expiries provide stability to forward earnings.

MAGIC posted a 0.1% yoy rise in 1QFY3/18 DPU to 1.851 Scts on a 4.6% yoy improvement in gross revenue thanks to positive rental reversions and a slight uptick in portfolio occupancy to 98.8%.
Results are in line, making up 25.2% of our FY3/18 forecast.
NPI margin was relatively stable at c.81% as higher property tax at Gateway Plaza (GP) was offset by lower marketing cost at Festival Walk (FW).

FW continues to do well with rental revenue up 2.9% yoy to S$61.8m and rental reversion of 9% over previous levels. Tenant sales and shopper footfall rose 2.1% yoy/4.6% yoy due to contributions from two mini-anchors – MUJI and Festival Grand cinema.
80% of FY18 retail expiries have been renewed/leased and the tenant mix has been strengthened with more international and popular brands such as Dr Kong, eGG, LACOSTE and Michael Kors. As such, we anticipate a continued strong showing.

GW posted a slight 1.6% lower NPI due to additional property taxes, partly offset by a 1.9% pts hike in occupancy to 98.8% and 10% positive rental reversions.
Contributions from Sandhill Plaza (SP) remained flat as higher achieved rents, thanks to 13% uplift on renewals, were moderated by a dip in occupancy. About 70% of GP and 54% of SP FY18 expiries have been renewed. As such, we expect a stable performance over the coming quarters.

In terms of capital management, gearing and effective interest cost held steady qoq at 39.4% and 2.74% respectively. The trust has fixed 76% of its debt cost, mitigating impact of interest rate volatility.
With the recent rollover of HK$510m of debt, there are no refinancing needs till FY19. About 58% of the trust’s FY18 distribution income has been hedged into Singapore dollars, giving investors good earnings visibility.

Our FY18-20 DPU estimates are intact. But we update our blended risk free rate assumption from 2.8% to 2%, to closer reflect current levels. Accordingly, our DDM-based target price is raised slightly to S$1.17.
We keep our Add call with a potential total return of 12%.
We like MAGIC for its exposure to the HK retail sales recovery and resilient performance of FW. Downside risks include slowdown in rental reversion or a decline in occupancy rate.

YEO Zhi Bin CIMB Research | LOCK Mun Yee CIMB Research | http://research.itradecimb.com/ 2017-07-31

CIMB Research SGX Stock Analyst Report ADD Maintain ADD 1.17 Up 1.140