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.

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 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 (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.

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.

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.

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