Wednesday, November 6, 2013

Mapletree Greater China Commercial Trust : Strong organic expansion (DBSV)

Mapletree Greater China Commercial Trust
HOLD S$0.93
STI : 3,201.20
(Downgrade from BUY)
Price Target : 12-Month S$ 0.97 (Prev S$ 1.00)
Strong organic expansion

• Earnings lifted by strong positive rental reversions
• Forward earnings growth underpinned by continued positive reversions, stable cashflow from a well patronized and a niche portfolio
• Downgrade to HOLD, TP $0.97

Strong organic growth. MAGIC reported gross revenue of $63.1m for 2QFY14 which is 9.5% ahead of prospectus forecast. NPI and distributable income came in 10% and 13.2% higher than projected to $50.6m and $38.8m respectively. 2Q DPU was 1.455cts. Together with the distributions achieved for the period 7 Mar to 30 June, the trust will distribute a total DPU of 3.183cts, to be paid on 29 Nov 2013.

Positive rental reversion at both properties. The better performance was achieved on higher portfolio occupancy of 99% (vs 98.3% in previous quarter) with Festival Walk (FW) being 100% taken up and Gateway Plaza (GP) at 98.3% leased. Rents achieved were 22% higher than previous corresponding levels at FW and 81% better at GP. FW continues to enjoy consistently robust shopper footfall growth of 5.2% yoy and sales turnover growth of 6.1%.

Our View
Strong and stable cashflow. With only a remaining 11% of leases due to be renewed at FW for the remainder of FY14 and another 4% at GP, the trust should continue to be underpinned by strong cashflow from FW while consolidation activities and expansion demand should continue to generate demand for niche office markets such as at GP. Transacted rents at GP remain at between RMB320-350psm/mth. The Manager is also in talks to renew its lease with anchor tenant BMW a year ahead of expiry at end 2014 and any conformation towards this end would extend the strong income visibility profile of the trust.

Lower gearing. With the repayment of HK$695m of term loan facility using operating cash, gearing dipped to 40.1%. Interest cost remains unchanged at 2%. Average loan maturity is 3.5 years and 71% of interest costs are hedged.

Downgrade to HOLD. We continue to like MAGIC for its quality assets and stable cashflow. With the latest organic income growth, we estimate that FW is trading at an annualized implied NPI yield of 4.8% while GP is trading at an NPI yield of c5.9%. This represents an attractive 280 and 170bps spread over the respective country risk free rate. However, with our economist’s latest revision in the 10-year bond rate projections for HK and China, which lifted the blended average risk free rate assumptions for the trust by 30bps, our DCFbacked TP is lowered to $0.97, translating to only a total return of 10%. Hence, we lower our call to HOLD on valuation grounds.

Source/Extract/Excerpts/来源/转贴/摘录: DBSV-Research,
Publish date: 04/11/13

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