Mapletree Greater China Commercial Trust - CIMB Research 2018-04-26: Robust Quarter

Mapletree Greater China Commercial Trust - CIMB Research 2018-04-26: Robust Quarter MAPLETREE GREATER CHINACOMM TR RW0U.SI

Mapletree Greater China Commercial Trust - Robust Quarter

  • Mapletree Greater China Commercial Trust (MAGIC) FY18 DPU of 7.48 Scts exceeded our forecast by 2%.
  • Underpinned by strong showing at Festival Walk, China continues to grow modestly.
  • Conducted private placement to part-fund Japan acquisition.
  • Maintain ADD with unchanged Target Price of S$1.30.

4QFY3/18 results highlights

  • Mapletree Greater China Commercial Trust (MAGIC) reported a 5.5%/6% decrease in 4QFY18 gross revenue/NPI to S$89.6m/S$72.9m due to reversal of higher VAT provisions made previously for Gateway Plaza (GW) and weaker HK$. This was partly offset by higher contributions from Festival Walk (FW). 4Q DPU of 1.9 Scts was -2.8% y-o-y. 
  • For the full year, DPU of 7.48 Scts exceeded our forecast by c.2%. 
  • The trust revalued its portfolio with a 25bps cap rate compression, resulting in higher BV of S$1.376/unit.

Strong performance from Festival Walk

  • Festival Walk (FW) remains fully occupied with rental reversions of 11% above the preceding levels in FY18. This was helped by a 7.4% y-o-y rise in tenant sales and 3.2% increase in shopper traffic. All trade sectors showed y-o-y improvements with higher growth coming from personal cosmetics, professional business and services, F&B and homeware. 
  • The property has 19.3% and 17% of income to be re-contracted in FY19 and FY20. The sustained strong trading performance of the mall augurs well for future rental reversions.

China growing modestly

  • Gateway Plaza (GW) saw a smaller although still healthy 8% rental uplift and higher occupancy of 96.5% with improved demand from new and renewal leases. MAGIC has a total of 9% of rental income due to be re-contracted at GW for FY19-20. With average passing rents close to spot market rents, rental growth from this property could likely be modest. 
  • Sandhill Plaza (SP) saw a 15% rise in renewal rents in FY18 with occupancy ticking back up to 100% at end-FY18.The property has 4.3% of income due to be rolled over in FY19-20 and we anticipate positive reversions.

Private placement of 311.6m new units to part-fund Japan purchase

  • MAGIC has completed a private placement of 311.602 new units at S$1.06/unit to raise S$330.5m to part-fund the purchase of a 98.74% stake in a Japanese commercial property portfolio. At a NPI yield of 4.8%, we anticipate this transaction to be accretive. 
  • Room for further upside exists as some of the leases are under-rented. Post-acquisition, we estimate Japan to make up c.12% of enlarged AUM (post revaluation) and NPI. Upon completion, Mapletree Greater China Commercial Trust will be renamed Mapletree North Asia Commercial Trust.

Gearing to remain just under 39% post acquisition

  • Post revaluation, the trust’s gearing dipped to 36.2% at end-FY18. Following the completion of the Japan portfolio, MAGIC’s gearing is anticipated to rise to just under 39%. Based on an optimal gearing of 42%, MAGIC has potential debt headroom of c.S$400m to tap inorganic growth opportunities. 
  • Management indicated that the Greater China area remains the trust’s core focus, particularly for business parks assets, and the region would continue to account for the bulk of contributions.

Maintain ADD rating

  • We adjust our FY19-20F DPU post results but leave our DDM-based Target Price unchanged at S$1.30. With the purchase of the Japan portfolio, the trust offers both stability and growth with a longer lease expiry profile and positive rental reversion prospects. 
  • MAGIC has hedged 73% of its 1HFY19 DPU and intends to distribute income on a quarterly basis from 1QFY19. 
  • Downside risks include a weaker-than-expected China market.

LOCK Mun Yee CIMB Research | YEO Zhi Bin CIMB Research | http://research.itradecimb.com/ 2018-04-26
SGX Stock Analyst Report ADD Maintain ADD 1.300 Same 1.300