Mapletree Greater China Commercial Trust - OCBC Investment 2017-07-31: Resilient Performance

Mapletree Greater China Commercial Trust - OCBC Investment 2017-07-31: Resilient Performance MAPLETREE GREATER CHINACOMM TR RW0U.SI

Mapletree Greater China Commercial Trust - Resilient Performance

  • MGCCT's 1QFY18 DPU flat YoY.
  • Portfolio occupancy at 98.8%.
  • Positive rental reversions of 9%-13%.

1QFY18 results met our expectations 

  • Mapletree Greater China Commercial Trust (MGCCT) reported its 1QFY18 results which came in within our expectations. 
  • Gross revenue and NPI grew 4.6% and 3.7% YoY to S$88.9m and S$72.0m, respectively, with the latter forming 24.8% of our FY18 forecast. 
  • Growth was driven by higher average rental rates across its three properties, lower VAT rate for Gateway Plaza (GP) compared to a higher rate accrued in 1QFY17 and a stronger average HKD against the SGD but partially offset by a weaker RMB. 
  • DPU came in flat (+0.1%) YoY at 1.851 S cents due to higher finance costs and income tax expenses, coupled with an enlarged unit base. This constituted 25.2% of our full-year forecast.

Resilient portfolio metrics 

  • Operationally, management achieved positive rental reversions of 9% at Festival Walk’s (FW) retail segment, while rental uplifts of 10% were achieved for GP and 13% for Sandhill Plaza (SP).
  • While this was a slight moderation for FW (FY17: +12%) and SP (FY17: +16%), we do not find it surprising as management had previously guided that rental growth would likely see a slowdown.
  • Overall portfolio occupancy stood at 98.8%, as at 30 Jun 2017, a marginal uptick of 0.2 ppt QoQ.
  • FW remained fully leased, while the dip in SP’s occupancy (100% to 97.5%) was offset by GP (96.9% to 98.8%). Encouragingly, FW’s footfall and tenants’ sales rose 4.6% and 2.1% YoY to 9m and HK$1,162m, respectively. The latter marked the first YoY increase following seven consecutive quarters of decline.

Maintain BUY with FV raised 

  • We believe MGCCT’s valuations remain attractive relative to its HK-listed peers (Link REIT, Prosperity REIT, Champion REIT, Sunlight REIT and Fortune REIT). 
  • Our 6.6% FY18F distribution yield forecast for MGCCT translates into a yield spread of 186 bps against its peers’ average yield of 4.8%, which is also above the 5-year average yield spread of 180 bps. 
  • Given a re-rating in the S-REITs sector, signs of stabilisation in China’s economy and continued resilient performance by MGCCT, we are lowering our cost of equity assumption from 8.5% to 8.1%.
  • Consequently, our fair value estimate is raised from S$1.13 to S$1.22. Maintain BUY.

Andy Wong Teck Ching CFA OCBC Investment | http://www.ocbcresearch.com/ 2017-07-31
OCBC Investment SGX Stock Analyst Report BUY Maintain BUY 1.22 Up 1.130