Mapletree Greater China Commercial Trust - CIMB Research 2018-01-26: Festival Walk Continues To Shine

Mapletree Greater China Commercial Trust - CIMB Research 2018-01-26: Festival Walk Continues To Shine MAPLETREE GREATER CHINACOMM TR RW0U.SI

Mapletree Greater China Commercial Trust - Festival Walk Continues To Shine

  • Mapletree Greater China Commercial Trust 3Q and 9MFY3/18 DPU in line with our expectations.
  • Continual strong performance at Festival Walk.
  • More challenging operating environment at Gateway Plaza.
  • Maintain HOLD with a DDM-based Target Price of S$1.26. 

3QFY3/18 results highlights 

  • Mapletree Greater China Commercial Trust (MAGIC) reported an in-line set of 3QFY3/18 results, with gross revenue and distribution income coming in at 3.8% and 4.8% higher y-o-y, respectively, thanks to improved performance across all its assets, albeit partly offset by a weaker HK$ and Rmb vs. S$.
  • 3Q and 9MFY3/18 DPU of 1.868 Scts/5.582 Scts, met our expectations, making up 25%/76% of our full-year projections. 3Q NPI margin slipped a little to 80.6% on higher A&P and maintenance costs while portfolio occupancy dipped 1.3% pt q-o-q to 96.9%.

Festival Walk continues perform well 

  • Festival Walk remains fully occupied and rental reversions during the quarter enjoyed a 10% uplift over preceding levels. This was helped by a 6.4% y-o-y improvement in tenant sales and a 3.5% y-o-y higher shopper footfall in 3QFY3/18. Trade sectors that did well include F&B, supermarket, personal cosmetics as well as department store and services.
  • The asset has a remaining 6.4% of income to be re-contracted for the remainder of FY18F and another 18.6% in FY19F.

Gateway Plaza occupancy dipped on softer demand 

  • Gateway Plaza (GW) saw a healthy 9% rental reversion in 9MFY3/18 even though occupancy declined 1.8% pt q-o-q to 94% in 3Q. There was softer demand for both new and renewal spaces due to competition from new supply in the vicinity. 
  • Gateway Plaza has a remainder 10.7% of renewals for FY18F and a small 3.3% for FY19F. With average passing rents close to par with spot market rents, we believe any rental growth would likely be modest from this property.

More upside for Sandhill Plaza 

  • Sandhill Plaza (SP) reported a 16% uplift in renewals YTD. While occupancy dipped to 98.3% at end-3QFY18 due to a lease pre-termination, the space has since been backfilled to close to 100% occupancy. 
  • Sandhill Plaza has only 0.5% of income due for renewal for the remainder of FY18F and another 1.2% in FY19F. We expect SP to enjoy positive rental reversion for its upcoming expiries as its average passing rent is still below market rates in that area.

Broaden investment mandate to include Japan 

  • The trust recently expanded its investment mandate beyond Greater China to include Japan. These could potentially include commercial properties in central and decentralised areas. 
  • Given the improving economic conditions and market fundamentals in Japan, as well as longer lease structures and a low funding cost environment, we believe any acquisition could potentially diversify MAGIC’s portfolio, making it more balanced.

Maintain Hold 

  • We leave our FY18-20 DPU estimates unchanged but lower our cost of equity assumption to 8.7% (vs. 9.4% previously). Accordingly, our DDM-based Target Price is lifted to S$1.26. 
  • We maintain our HOLD call. 
  • Upside risk is stronger-than-expected HK rental growth and new acquisitions. 
  • Downside risks include weaker-than-expected China market.

LOCK Mun Yee CIMB Research | YEO Zhi Bin CIMB Research | http://research.itradecimb.com/ 2018-01-26
CIMB Research SGX Stock Analyst Report HOLD Maintain HOLD 1.26 Up 1.200